The Federal Reserve Bank of Chicago recently released its quarterly Agricultural Newsletter. The newsletter is based on 209 survey responses from agricultural bankers within the 7^th district, which includes Illinois, Indiana, Iowa, Michigan, and Wisconsin. The results of the survey were mixed and suggested a challenging environment in 2009. However, “good” agricultural land values in the District rose 5% annually in 2008, with Wisconsin leading the way with a 13% increase.

Since 1986 land values in the District have consistently appreciated annually and have experienced only 4 down years since1972.

On a quarterly basis, values of agricultural land in all states within the District were flat to slightly negative, with the overall District contracting 4%. This is the first time in a decade that Farmland values in the 7^th District declined in value on a quarterly basis.


Source: The Agricultural Newsletter from the Federal Reserve Bank of Chicago – February 2009

Even though “good” land appreciation in this region did slow in 2008 to 5%, we believe you would be hard pressed to find a portfolio of more typical assets that not only outperformed Farmland for the same time period, but was actually positive.

The credit situation in the District’s agricultural area also remains positive as demand for non-real-estate loans in 2008 continued 5 years of growth, based on survey results. The survey also indicated that agricultural interest rates are at their lowest levels in 5 years and funds availability will likely continue to increase in 2009.

Looking forward, 2009 will likely be a very challenging year for most asset classes, including agricultural land. However, history has shown the resiliency and consistency of this asset class. Looking forward, farm income will likely slow in 2009 from its 2008 peaks; however this metric, which supports underlying land values, will likely remain strong as commodity prices rebound from the current depressed levels. Rationale for this rebound is discussed in the Stimulus and Inflation piece posted on February 21^st.

-GDH