Aug 16 The price of prime farmland in the
drought-hit U.S. Midwest grain belt rose 1 percent in the second
quarter, the smallest quarterly increase in two years, the
Federal Reserve Bank of Chicago said on Thursday.
But while the district's worst drought in nearly a quarter
century will dramatically shrink soybean and corn output, land
values this quarter were not expected to fall, the Fed said in
its quarterly survey of 205 bankers in the district.
The Chicago Fed district includes the heart of the U.S. Corn
Belt states of Iowa, Illinois and Indiana, and parts of
Wisconsin and Michigan.
"The drought did not seem to have stifled all the momentum
of rising agricultural land values," the Chicago Fed said in its
August Ag Letter.
Just 4 percent of those surveyed expected farmland values to
drop this quarter; more than 70 percent see farmland markets
"Coming after several years of farm income that were better
than average, the drought should not reverse the gains in
farmland values, but there could be a pause while expectations
about future earnings from crop production adjust to the
short-term effects of this summer's drought," the Fed said.
The value of district farmland rose 15 percent from a year
earlier, the report said, a rise that "seems modest only in the
context of exploding farmland values over the past few years."
In the Chicago Fed district, Iowa and Illinois combined
produce about a third of the domestic corn and soybean crops.
The United States is the world's leading exporter of those food
and industrial crops.
Farmland values are closely watched by Federal Reserve
economists and by commercial bankers as a barometer of U.S.
banking assets and as a benchmark for agricultural balance
sheets. Farmland is a basic collateral for farm loans.
The Kansas City Federal Reserve's quarterly farmland survey
on Wednesday showed values across Kansas, Oklahoma, Nebraska and
parts of Missouri rose 3 percent from the prior quarter.
While the drought in the Chicago Fed district is considered
the harshest since 1988, the wider drought affecting the rest of
the Midwest and the Plains states has been called the worst one
in 56 years.
CREDIT CONDITIONS LEVEL
Higher crop prices and crop insurance payments will
partially offset the drought's impact, but the drought -- the
worst in the district since 1988 -- has hit livestock operations
particularly hard, the Fed report said.
Higher feed costs and the lack of extensive insurance
coverage for corn and soybean prices have cut dairy, hog,
poultry and cattle enterprises.
The district has already incurred "severe losses" in farm
income in 2012, the Chicago Fed report said.
Still, agricultural credit conditions in the Corn Belt were
resilient, with funds availability at a record high, and
repayment rates for non-real-estate farm loans improving.
While interest rates on agricultural operating loans and
mortgages set new lows, demand for non-real-estate loans was
"feeble" compared to a year ago, it said. The average
loan-to-deposit ratio, at 68.1 percent, was 10 percentage points
below the average level that respondents said was optimal.
A few bankers thought repayment problems would increase
because of the drought, the survey said. Respondents expected
overall non-real-estate agricultural loan volumes to fall this
quarter compared with a year ago, while farm mortgage volumes
were forecast to rise slightly.
The Fed said that Iowa farmland values remained the
strongest in the district with a year-over-year increase of 24
Land values in Illinois, Indiana and Wisconsin were up 15
percent, 12 percent, and 13 percent, respectively. (There were
too few responses in Michigan to generate data this quarter, it
said). Non-real-estate farm loan volumes were expected to rise
in Indiana and Wisconsin, the report said.