Farmland values for the Seventh Federal Reserve District were down 1% in the second quarter of 2019 compared to the same period of 2018, according to the Federal Reserve Bank of Chicago’s August Ag Letter. This was the first such decline since the third quarter of 2017. However, values for “good” agricultural land in the District were unchanged from the first quarter to the second quarter of 2019, according to a survey of 157 bankers. Iowa and Michigan had year-over-year dips in their farmland values, but Illinois, Indiana and Wisconsin farmland values held steady.
The Seventh Federal Reserve District includes northern portions of Illinois and Indiana, southern Wisconsin, the Lower Peninsula of Michigan, and the state of Iowa
Excessive precipitation in the spring led to historic flooding and widespread planting delays across most of the Midwest. Reporting bankers indicated that 69% of their borrowers were at least modestly affected by extreme weather events in the first half of 2019. Despite concerns about the effects on farming from adverse weather and trade disruptions, 83% of survey respondents expected District agricultural land values to be unchanged during the third quarter of 2019 (only 2% expected them to increase, while 15% expected them to decrease).
In the second quarter of 2019, agricultural credit conditions for the District were weaker compared with a year ago once again. Repayment rates for non-real-estate farm loans were lower in the second quarter of 2019 than a year earlier. The portion of the District’s agricultural loan portfolio reported as having “major” or “severe” repayment problems (6.2%) had not been higher in the second quarter of a year since 1999.
In addition, renewals and extensions of non-real estate farm loans in the District were up from a year ago. For the April through June period of 2019, the demand for non-real estate farm loans was higher than a year earlier, but the availability of funds for lending by agricultural banks was lower.
Average nominal interest rates for agricultural real estate and operating loans moved down during the second quarter of 2019, while the average rate for feeder cattle loans edged up.
As of July 1, 2019, the District’s average nominal interest rate on new feeder cattle loans had risen to 6.14%, while its average nominal interest rates on farm operating and real estate loans had fallen to 5.98% and 5.39%, respectively. After being adjusted for inflation with the Personal Consumption Expenditures Price Index (PCEPI), average interest rates on farm operating and real estate loans decreased during the second quarter of 2019 for the first time since the second quarter of 2018.