By DOUG SCHMITZ

Iowa Correspondent

CHICAGO, Ill. — In the third quarter of 2018, farmland values in the Federal Reserve Bank of Chicago’s (FRBC) Seventh District were up 1 percent from a year ago.

However, district farmland values were 1 percent lower in the third quarter than in the second quarter, according to the 188 agricultural bankers who responded to the bank’s Oct. 1 survey in the district, which includes the northern portions of Illinois and Indiana, southern Wisconsin, the Lower Peninsula of Michigan and the state of Iowa.

“This was the first quarterly decline for district agricultural land values since the fourth quarter of 2016 (nearly two years ago),” said Dave Oppedahl, FRBC senior business economist, who conducts the quarterly surveys.

“Almost two-thirds of survey respondents expected the district’s farmland values to be stable during the fourth quarter of 2018,” he added, “but 32 percent of them expected a decrease in farmland values in the final quarter of this year and only 2 percent expected an increase.”

He said agricultural credit conditions for the district deteriorated again in the third quarter.

“For the fifth quarter in a row, the availability of funds for lending by agricultural banks was down relative to a year ago,” he said. “Yet, for the third quarter of 2018, the demand for non-real-estate farm loans was higher than a year earlier. These results helped explain how the average loan-to-deposit ratio for the district established a new record of 79.4 percent.”

Moreover, after being adjusted for inflation with the Personal Consumption Expenditures Price Index (PCEPI), district farmland values were down 1 percent in the third quarter of 2018 relative to the third quarter of 2017.

“The latest results were in line with recent trends: While nominal farmland values had remained fairly stable during the past few years, real farmland values had been eroding since the third quarter of 2014,” the survey read.

Chris Hurt, Purdue University professor of agricultural economics, told Farm World, after peaking in 2014, farmland values declined about 15 percent to 25 percent (depending on the state) and have been more stable since 2016.

“It has been typical to hear farmland values as up or down a little in the past two years (more stable),” he said. “Further, the survey said that about two-thirds of respondents expect weaker prices in the fourth quarter. That is driven by continued tariff concerns and by the continuation of higher interest rates to finance farmland purchases.”

Hurt added most farmers continue to feel that crop margins are narrow.

“However, corn prices and yields are up for the 2018 crop, and for soybeans, yields are generally high and while bean prices are down, the trade aid (first-installment) largely makes up for the lower market price – and there is a potential second installment to be announced in early December. Overall crop farm incomes will be somewhat higher for the 2018 crop versus 2017 and this will help stabilize the expected decline (according to the survey results).”

However, agricultural land values would have experienced more downward pressure in the absence of exceptional crop yields, the survey indicated.

“In 2018, district-wide corn and soybean yields jumped to all-time highs (i.e., 198 bushels per acre for corn and 59 bushels per acre for soybeans),” the survey read. “According to USDA forecasts, the five district states’ harvest of corn for grain in 2018 would increase by 1.5 percent from 2017, and their soybean harvest would surge by 8.7 percent from the previous year, setting a new record.”

But stress on prices of corn and soybeans have contributed to minor weaknesses in agricultural land values in Iowa and other parts of the Midwest, said Dave Miller, Iowa Farm Bureau Federation director of research and commodity services.

“With soybeans down 15-20 percent from the highs seen this year in the second quarter, land values have softened a bit,” he told Farm World.

“Record yields in Illinois and very good yields – despite weather issues in Iowa – have limited the weakness, but continued uncertainty about future trade prospects with China and other countries will keep buyers a bit pessimistic until the clouds of uncertainty dissipate,” he added.

The survey stated nearly two-thirds of respondents predicted farmland values to be stable in the fourth quarter of 2018, while 32 percent of responding bankers expected farmland values to decrease in the October through December period of 2018 and just 2 percent expected farmland values to increase.

“Rising interest rates are also adding to the slight downturn in land values,” Miller said. “And the likelihood of additional rate hikes by the Federal Reserve in 2019 will also act as a depressant on land prices in the coming months.”

To read the entire survey results, visit www.chicagofed.org/publications/agletter/2015-2019/november-2018