* Farmland values climb as agricultural prices rise
* Credit conditions improve amid record low interest rates
By Christine Stebbins
CHICAGO, Nov 18 Farmland values in the U.S.
Midwest, one of the world's top grain growing regions, jumped
10 percent in the third quarter compared to a year ago due to
rising agricultural prices and the low cost of money, the
Federal Reserve Bank of Chicago said on Thursday.
"Just two years after a string of double-digit increases,
District farmland values increased 10 percent in the third
quarter of 2010 relative to the same period last year," the
Chicago Fed said in its quarterly survey of 227 agricultural
bankers in the five-state area.
"With the value of 'good' agricultural land rising so
quickly, there were reports of more farms put up for sale than
in recent quarters," the bank said.
The Fed's seventh district stretches across Iowa, Illinois,
Indiana, Wisconsin and Michigan. Iowa and Illinois alone grow
one-third of U.S. corn and soybeans, while Wisconsin and
Michigan are major dairy states. Pork production is another
leading industry across the district.
"The turnaround in credit conditions was quite abrupt,"
Chicago Fed economist David Oppedahl said in an interview.
"We had strong credit, strong land value growth a couple
years ago, and then things changed pretty dramatically with
lower corn and soybean prices. Now there was a surge in those
so we have a much more favorable situation again this fall."
Corn prices climbed 27 percent from July to October and
soybeans were up 11 percent amid concerns about shrinking world
stockpiles. Yield estimates for U.S. corn also shrank.
Iowa farmland values were up the most at 13 percent over a
year ago. Indiana and Michigan followed closely as values
increased 11 and 10 percent, respectively.
"Farmland values were expected to be up again in the fourth
quarter of 2010 by almost half of the respondents," the Fed
Bankers expected demand for farmland to rise both among
farmers and nonfarm investors in the coming quarter.
Agricultural credit conditions were also stronger in the
third quarter compared to 2009. Loan repayment rates improved
and loan renewals and extensions were down. But demand for
non-real-estate loans in the third quarter receded from a year
"Interest rates on agricultural operating and real estate
loans dropped to the lowest values recorded in history of the
survey," said the Fed, which began surveying rates in 1970.
The average interest rate on agricultural real estate loans
as of Oct. 1 was 5.81 percent and the average operating loan
interest rate declined to 6.04 percent.
The average loan-to-deposit ratio of the banks in the
survey was 73.2 percent, a six-year low, the Fed said.
"Respondents expected agricultural credit conditions to
improve further during the fall and winter," it said. "Forced
sales or liquidations of farm assets among financially stressed
farmers were expected to diminish this fall and winter."
But the volume of livestock loans was predicted to contract
in the final quarter of 2010 compared to 2009.
(Reporting by Christine Stebbins; editing by Jim Marshall)