According to the February 2015 Agricultural Newsletter from the Federal Reserve Bank of Chicago, quality farmland prices in the district (U.S. farm belt) decreased by 3% in 2014. However, the survey respondents from 224 agricultural banks across the Seventh Federal Reserve District noted that farmland prices remained stable in the fourth quarter (ie, all of the 3% annual decline came in the first nine months of the year).

Farmland Prices

Future farmland price projections

The Fed newsletter noted that around half of the respondents to the survey anticipated that farmland values would be down in the January through March quarter of 2015, and only 1% were hopeful that farmland values would increase in the area close to their bank.

More on 2014 farmland values

Farmland Prices

The report noted that the annual decrease of 3% in “good” farmland values for 2014 was the first down year since 1986. Furthermore, 4Q 2014 was the first time since 3Q 2009 that the Seventh District saw a year-over-year decline in farmland values. The booming sector has attracted many investors, who thought values will keep rising.

When adjusted for inflation, the drop in agricultural land values for 2014 was the first down year since 1992. The report noted: “The streak of annual increases in District farmland values in real terms had reached 21 years before being broken in 2014. Still, at the end of 2014 the index of inflation-adjusted agricultural land values for the District was 68 percent higher than at its 1979 peak from the 1970s boom (see Chart 2).”

Farmland Prices

Also of note, in the fourth quarter of 2014, Illinois, Indiana and Iowa all saw decreases in agricultural land values on a year-over-year basis, whereas Wisconsin saw a modest increase, and there was no change in farm land values in Michigan.

Agricultural credit conditions

The February 2014 Fed newsletter also highlighted that “recent trends in agricultural credit conditions extended into the fourth quarter of 2014.” It also noted that non-real-estate loan demand was greater compared to a year ago. Funds available for lending also stayed above year-ago levels. Moreover, the average loan-to-deposit ratio also increased for the third consecutive quarter, up to 70.6%. That is the highest level seen in the last four years.

In addition, repayment rates on non-real-estate farm loans were notably lower in the October through December period of 2014 compared to 4Q 2013, and loan renewals and extension rates were also higher. The newsletter pointed out that average interest rates on farm operating and real estate loans were near-historic lows in November and December of 2014.

Farmland Prices