Chicago Fed survey: District farmland values increased 12%

CHICAGO — Farmland values in the 7th Federal Reserve District increased 12% during 2022, which helped reach a new peak, even though the yearly gain was smaller than that of 2021.

The Federal Reserve Bank of Chicago’s AgLetter reported its findings from a survey of 147 agricultural bankers.

“Although this result may seem like a letdown after the even larger increase in 2021, 2022′s annual gain was the second largest in the past 10 years,” said David Oppedahl, Federal Reserve Bank of Chicago’s senior business economist.

“In the final quarter of 2022, Illinois (14% increase), Indiana (23%), Iowa (11%) and Wisconsin (11%) still had double-digit year-over-year increases in their agricultural land values, but Indiana was the only district state to have an increase that was larger than in the fourth quarter of 2021.

“On the whole, the district’s farmland values were unchanged in the fourth quarter of 2022 from the third quarter, ending a string of eight consecutive quarterly increases.”

David Klein, First Mid Ag Services vice president and designated managing broker and auctioneer, based in Bloomington, said the Federal Reserve District farmland values survey confirms what that firm is seeing from its data.

“At First Mid Ag Services, we track a first-half/last-half of the year comparison to determine how farmland values may be changing seasonally and by soil quality in our strategic market areas we serve across Illinois,” Klein noted.

“As we compare the last half of 2021 to the last half of 2022, arms-length sales data comprised mainly of auction sales across all land classes shows a 16% per tillable acre price increase year-over-year and 12% increase per acre.

“The percentage of tillable acres was slightly lower in 2022 versus 2021 and the soil PI about 1.5 points higher, which accounts for some of this variance in those numbers. So, the data set suggests in Illinois we sold slightly higher quality land in 2022 than we did in 2021.

“The data set revealed soil quality also seemed to matter, as soils in the 130 to 138 soil PI range increased the most, while some of the lower soil quality ranges did not show quite as much increase in land valuation in 2022.”

Credit Conditions

The 7th Federal Reserve District survey also looked at the agricultural credit conditions through 2022.

Stronger agricultural credit conditions and net income for the district contributed to the optimism of farmers.

The share of the district’s farm loan portfolio assessed as having “major” or “severe” repayment problems was 1.2% in the fourth quarter of 2022 — lower than the share reported in any final quarter since collection of these data began in 1998.

“With 33% of survey respondents reporting higher rates of loan repayment than a year ago and just 2% reporting lower rates for the fourth quarter of 2022,” Oppedahl said.

“In addition, non-real-estate farm loan renewals and extensions in the final quarter of 2022 were lower than in the final quarter of 2021, as 4% of survey respondents reported more of them and 17% reported fewer. Both of these indicators of farm credit conditions were better than a year earlier in each of the nine most recent quarters.”

Despite fewer problems with lending, 20% of survey respondents’ banks tightened their credit standards for farm loans in the fourth quarter of 2022 compared with a year ago, while only 4% of the banks eased their credit standards, with the rest of the banks keeping their credit standards essentially unchanged.

Meanwhile, 96% of responding bankers noted their banks did not change the amounts of collateral required for customers to qualify for non-real-estate farm loans during the final quarter of 2022 relative to a year ago; 3% noted their banks required larger amounts, while 1% noted their banks required smaller amounts.

Looking Forward

According to survey respondents at the beginning of 2023, only 0.9% of their farm customers with operating credit in the year just past were not likely to qualify for new operating credit in the year ahead, slightly above the survey’s record low.

Both farm real estate loan and non-real-estate loan volumes, except for the volume of operating loans, were projected to be smaller in the first three months of 2023 compared with the same three months of a year earlier.

At the start of 2023, survey respondents forecasted capital expenditures by farmers would be higher in the year ahead than in the year just ended for machinery, equipment, trucks and autos, but not for land purchases or improvements nor for buildings and facilities.

There were more responding bankers (16%) who predicted farmland values to go up in the next quarter — in this case, the first quarter of 2023 — than those who predicted farmland values to go down (10%); 74% of the respondents predicted them to be stable.

Given the trends reported in the survey, slower growth in agricultural land values would seem likely for the first quarter of 2023.

The Chicago district includes the northern two-thirds of Illinois and Indiana, all of Iowa, the southern two-thirds of Wisconsin and Michigan’s Lower Peninsula.