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Farmland values in the upper Midwest declined from the previous quarter for the first time in five years. The Seventh Federal District released their third quarter assessment of farmland values and credit conditions this month. While reporting no change in year-to-year farmland values, the report estimated a 2% decrease in farmland values from the second quarter. The reduction was attributed to waning grain prices ending the streak of 19 consecutive quarters of growth.
Indiana and Michigan farmland values reported increases of 4% and 1% from last quarter, and 3% and 10% from last year. Unfortunately, those gains were not enough to offset quarterly decreases of 6% in Iowa, 4% in Wisconsin, and 2% in Illinois, and annual decreases of 4% in Iowa and 1% in Illinois. The majority of bankers across the district, surveyed for the report, were not confident about the outlook for farmland values in the fourth quarter. 56% of those surveyed predicted farmland values to continue to decrease in the fourth quarter, while 44% expected values to remain level or increase.
Source: Seventh Federal District AgLetter
Credit Conditions
Declining grain prices, which are down 15% for corn and 20% for soybeans from last year, has forced farm incomes to decline year-over-year for only the second time since 2009. The decline in farm income has slowed repayment rates for non-real-estate loans, sinking to their lowest level since the second quarter of 2010.
Non-real-estate loan demand continued to increase for the fourth consecutive quarter and are expected to increase to near record highs. Bankers across the district have also reported fewer funds available for loan, as well as tighter collateral requirements from a year ago.
Outlook
The majority of bankers feel that farmland values will decline in the fourth quarter for the first time since 1998. Respondents also feel that the demand from farmers and non-farm investors to acquire farmland this fall and winter will be lower than a year ago. The credit environment for farmers is tightening as bankers are expecting collateral requirements to increase through the next quarter as well as record setting loan demand.
If banks make it more difficult for farmers to borrow the money they need to run their operation in 2015, farmers will look for other opportunities to raise money. In the past when non-real-estate loans have been less attainable farmers sold portions of their owned acres to inject cash into their operation. An increase in the number of farms available for sale, coupled with the lower demand for farmland suggested in the report, may lead to the farmland market selling at a discount for the next three to six months.
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