Agricultural land values flat in second quarter

CHICAGO — Farmland values for the Seventh Federal Reserve District increased 2% in the second quarter of 2024 from a year earlier, marking the smallest year-over-year gain since the third quarter of 2020.

“Moreover, in real terms, after being adjusted for inflation with the Personal Consumption Expenditures Price Index, there was actually a year-over-year decrease of 1% in district agricultural land values,” according to AgLetter author David Oppedahl, Federal Reserve Bank of Chicago policy adviser.

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

Values for “good” agricultural land were flat in the second quarter of 2024 relative to the first quarter, according to survey respondents from 136 district agricultural banks.

Illinois farmland saw a 3% year-over-year increase and no increase from April 1 to July 1 of this year.

Agricultural land in Indiana increased 2% from year ago and 1% from the first to second quarter.

Iowa agricultural land values had a 3% year-over-year decrease and dropped 1% from the first to second quarter.

Farmland in Wisconsin increased 12% from a year ago and 2% in the second quarter. Wisconsin’s farmland values seemed to reflect better returns from milk production, though crop returns lagged, according to the report.

“This deceleration in farmland value increases has been accompanied by declines in key agricultural prices, which in turn have negatively affected farm revenues,” Oppedahl said.

“The U.S. Department of Agriculture’s June index of prices received by farmers for crops was down 11% from one year ago and was down 15% from two years ago. With steeper drops from two years ago, corn and soybean prices were 39% and 28% lower in June 2024 than in June 2022, respectively.

“In contrast, the USDA’s June index of prices received by farmers for livestock and products was up 10% from one year ago and was up 2% from two years ago. Even though down from two years ago, June hog and milk prices were up 3% and 28% from one year ago, respectively.”

Expenses

Besides a bleaker revenue picture, prices paid by farmers were fairly flat following large increases in their costs through 2022.

In June 2024, overall costs for commodities and services, interest, taxes and wage rates were up 28% relative to June 2020, though they were essentially unchanged from June 2023, based on USDA data.

“Even so, the USDA’s Economic Research Service forecasted farm production expenses in 2024 to rise by 3.8% from 2023 for the nation. With potentially higher costs and lower revenues, net farm income was expected to fall in 2024. An Illinois banker reported that ‘net farm income will be low to negative,’” Oppedahl said.

Credit Conditions

Agricultural credit conditions in the second quarter of 2024 continued to show signs of softening in the Seventh District.

As of July 1, the district’s average nominal interest rates on new operating loans, at 8.47%, feeder cattle loans, at 8.44%, and farm real estate loans, at 7.55%, were down slightly from their various high points in the past year.

In real terms, after being adjusted for inflation with the PCEPI, the average interest rate on operating loans remained stable from the first quarter of 2024, but average interest rates on loans for feeder cattle and farm real estate in the second quarter of 2024 both decreased slightly from their recent peaks in the past year.

Repayment rates for non-real-estate farm loans relative to a year ago remained lower. The index of loan repayment rates was 85 for the second quarter of 2024, up slightly from 78 for the first quarter of 2024, but down from its value of 105 in the second quarter of 2023.

Only 4% of responding bankers noted higher rates of loan repayment than a year ago and 19% noted lower rates.

The share of farm loans with “major” or “severe” repayment problems in the Seventh District’s agricultural loan portfolio, as measured in the second quarter of every year, was 2.2% in 2024, up somewhat from last year’s 1.3%.

The share of farm loans with “no” repayment problems declined to 91.6% from its all-time peak of 94.5% a year ago.

Renewals and extensions of non-real-estate farm loans during the second quarter of 2024 were higher than during the same period of a year earlier, as 25% of survey respondents reported more of them and just 2% reported fewer.

Looking Forward

Five percent of survey respondents forecasted higher district farmland values during the third quarter of 2024, while 25% forecasted lower values; the remaining 70% forecasted farmland values to be stable during the July through September period of this year.

A majority of survey respondents were of the view that Seventh District farmland was overvalued. Not a single respondent was of the view that it was undervalued.

Survey respondents expected higher volumes for non-real-estate agricultural loans, especially for operating loans, in the third quarter of 2024 compared with year-earlier levels.

However, farm machinery, grain storage construction and farm real estate loan volumes were expected to shrink below the levels seen in the third quarter of 2023.

An Iowa respondent anticipated “working capital will decrease again this year.”

According to another Iowa banker, “lower working capital is a strong predictor of challenges ahead for agriculture.”