CHICAGO Feb 13 Farmland values in the Midwest
mostly edged higher in the fourth quarter of 2013 with the
market tone improving from the weakness the prior three months
and easing some concerns about a potential farmland "bubble"
that has worried bankers and policymakers.
In quarterly surveys of farm bankers in the Midwest issued
on Thursday, the Federal Reserve banks of Chicago and St. Louis
said that most farmland prices in the central Corn Belt edged up
in the October-December period from the prior three months.
"Agricultural land values rose 3 percent from the third
quarter to the fourth quarter of 2013," the Chicago Fed said,
based on a survey of 186 farm bankers. "A majority of
respondents anticipated farmland values to remain stable during
the January through March period."
Cash rents, another key indicator of farmland value, were
also steady to higher as farmers negotiated contracts in the
fourth quarter that will cover the 2014 season, according to the
St. Louis Fed. Values were buoyed by a gain in farm incomes in
the quarter, including crop insurance payments and much larger
harvest supplies even at lower prices.
The Chicago Fed's district includes most of Iowa, Wisconsin
and Michigan as well as northern Illinois and Indiana, a region
responsible for about one-third of U.S. corn and soybean
production as well as large amounts of dairy, pork and cattle
Farmland values in the central United States are closely
tracked by government economists as a gauge of the U.S. economy
and health of the banking system.
In recent years, both crop and farmland prices have set
records as the boom in biofuels and food exports fueled demand.
But the sharp drop in second-half 2013 grain prices ahead of the
record corn harvest had bankers fretting that farmland prices
could also plunge.
A similar so-called bubble popped in the 1980s, causing
massive farm failures. Most farmers' loans are collateralized by
The Fed surveys, reflecting the annual fourth-quarter Corn
Belt land auctions and rent negotiations, should relieve some of
those worries. Farmer balance sheets are generally in great
shape after five years of record income. Interest rates remain
near record lows.
CAUTION STILL PREVAILS
But bankers in the Fed surveys said nervousness remains and
credit conditions were tightening.
"Fifty-six percent of the responding bankers anticipated
farmland values to be stable from January through March of 2014;
41 percent anticipated them to be lower; and just 3 percent
anticipated them to be higher," the Chicago Fed said.
"Combined with expectations of diminished farmland purchases
by farmers in 2014, these survey responses cast a pall over the
spectacular growth in agricultural land values of the past few
years," the bank said.
The St Louis Fed's results from 49 bankers - tracking
Arkansas and parts of Illinois, Indiana, Kentucky, Mississippi,
Missouri and Tennessee - were comparable.
After easing in the third quarter, average crop land values
bounced back by about 11 percent in the last quarter to $5,868
per acre. Cash rents also rose 5 percent in the fourth quarter
compared to the third quarter.
However, for the second consecutive quarter, the St. Louis
Fed said, "more bankers expect quality farmland values to
decline over the next three months relative to a year earlier."
The doubts about future strength in farmland prices were
tied to questions about 2014 farm income.
"Corn, soybean and wheat prices for the fourth quarter of
2013 were lower, on average, by 35 percent, 11 percent and 18
percent, respectively, than their prices of a year ago," the
Chicago Fed said. That, plus assumptions about higher farmer
costs for fertilizer, fuel and seed this year, supported the
"Given the current level of crop prices, it will be a
challenge for some to keep from falling behind," said David
Oppedahl, a Fed economist and author of the bank survey. "It's
going to be a challenging year."
One key area to watch will be Iowa, the No. 1 corn, soybean
and hog growing state. Hit hard by drought for a second year in
2013, Iowa farmland prices slipped 1 percent in the fourth
quarter and finished 2 percent lower for the full year, the
Chicago Fed said.
That was seen as a reflection of land productivity: Iowa's
2013 corn harvest was just 15 percent higher than 2012, when the
Midwest saw the worst drought in half a century. Illinois corn
output in 2013, by contrast, was up 63 percent and Indiana's up
As of late January, the Chicago Fed said $2.22 billion in
crop insurance payments had been issued to its district, about
23 percent of the national total of $9.60 billion. Iowa was
accounting for 61 percent of those payments after losses.
Given the caution about land values and returns in the
coming year, the Chicago Fed said, "credit availability was
somewhat more restricted than a year earlier," and "six percent
of reporting banks required larger amounts of collateral for
non-real estate loans."
Most grain farmer balance sheets remain strong, however,
reflecting the recent years of record grain prices and land
values. Less than 2 percent of farm customers in 2014 in the
northern Midwest would not again qualify for farm loans, the
Chicago Fed said.
On Friday, the Kansas City Federal reserve will issue its
banker survey for Plains farmland values.