Federal Reserve Banks provided land value and credit condition summaries from second-quarter 2014 ag lender surveys. As always, state and district averages may not reflect local conditions.
Partly buoyed by a spring rally in corn and soybean prices, second-quarter 2014 average farmland values in the Federal Reserve Bank of Chicago (covering all or portions of Illinois, Indiana, Iowa, Michigan and Wisconsin) were up 2% on the quarter and 3% from a year ago. But, given the downward trends in crop prices, the increases may turn out to have been blips, and farmland values may have already plateaued, according to David Oppedahl, business economist. Only 2% of survey respondents anticipated farmland values to rise during the third quarter of 2014, while 30% predicted them to fall, and 68% expected them to be stable.
Back in the second quarter, however, only Iowa exhibited a year-over-year decline in agricultural land values, and only Indiana had a quarterly decrease. Profitability in the livestock sector served to counteract some of the weakness in the crop sector. In particular, the improved bottom line for dairy operations corresponded with a boost in demand for farmland in some areas. For instance, the surge in dairy farming profits was consistent with Wisconsin’s 6% jump in quarterly farmland values.
Ag credit conditions weakened somewhat in the second quarter of 2014 relative to a year ago. Repayment rates for non-real-estate farm loans were lower, even though ag loans with “major” or “severe” repayment problems still made up less than 2% of the district loan portfolio. There was evidence of a small shift of repayment problems from Wisconsin to states that produce more corn and soybeans. Also, 13% of the survey respondents observed more loan renewals and extensions over the April-June period compared with the same period last year; 6% observed fewer of them.
Demand for non-real-estate loans was higher than a year earlier, and bankers expected loan volumes – especially those for operating loans – to increase in the third quarter of 2014 relative to the same quarter of 2013. Volumes for farm machinery and grain storage construction loans were forecasted to fall.
Survey respondents generally anticipated farm real estate loan volumes to be lower. However, bankers from Wisconsin expected higher farm real estate and dairy loan volumes, largely because of anticipated profits from dairy farming.
Collateral requirements for loans tightened somewhat in the quarter. On the whole, banks had more funds available to lend in the second quarter of 2014 than a year ago.