Farmland Posts the Largest Increase in Three Decades
During the third quarter of 2011, farmland values in the 7th Federal Reserve District rose 25% year-over-year according to the Federal Reserve Bank of Chicago’s third quarter survey of Farmland Values and Credit Conditions Report. The value of "good" farmland increased 7% in the third quarter compared to the second quarter of 2011, the largest increase since the late 1970's. All District states posted higher year-over-year increases in farmland values and the largest year-over-year land value increases came from Indiana and Iowa at 29% and 31%.
The outlook for farmland values in the fourth quarter are promising as 216 bankers who responded to the October 1st survey believe values will rise through the end of 2011. 39% of the survey respondents anticipate an increase in farmland values from October through December 2011 and only 2% anticipate a decrease.
Farmers are expected to be the primary buyers of farmland as 60% of respondents predict an increase in demand for farmland among farmers over the next three to six months, whereas 3% forecast a lower demand. 41% of respondents also expect greater demand from investors over the next three to six months, whereas 16% expect a decrease in demand.
More farmland is expected to be up for sale in the next three to six months, due to the appreciation in farmland and commodity prices.
Earnings
According to the U.S. Department of Agriculture (USDA) forecasts, 2011 net farm income is anticipated to increase $24.5 billion from 2010, totaling $103.6 in 2011. Subsequently, survey respondents anticipated higher net cash earnings for fall and winter 2011 relative to the 2010 fall and winter.
A drop in corn and soybean prices has not reduced optimism for farm income as 74% of respondents expect a rise in net cash earnings for crops, as oppose to only 9% expecting a decrease. October corn and soybean prices remain above last year's levels as corn is up 37% and soybean up 17%.
Livestock producers are expected to enhance earning this fall and winter. The USDA forecasts a $22.7 billion increase in livestock production for 2011 compared to last year. Prices for hogs, cattle and milk were 29%, 22%, and 7.6% higher this October compared to last October. In addition, feed costs have declined which in turn boosts net income for livestock producers.
The rise in net farm income stems from gains of $34.7 billion in the value of crop production and $22.7 billion in the value of livestock production. Increased levels of farm income and heightened demand for farmland continue to support gains in agricultural land values.
Credit
Agricultural credit condition continues to improve across the 7th district in the third quarter of 2011. Interest rates have trended lower than the 2nd quarters historically low levels. The districts average interest rate on agricultural real estate loans fell to 5.36%. On average, operating interest rates fell to 5.66% for the district. Iowa posted the lowest rate for farm mortgages at 5.24% and Indiana had the lowest rate for operating loans at 5.44%.
The index of funds available for the third quarter of 2011 equaled its highest value since 1987. 52% of responding banks indicated there were more funds available during the third quarter this year compared to last year. Only 3% indicated there were fewer funds available this year compared to last year.
Demand for non-real-estate loans continued to decline. Only 18% of respondents reported higher demand for non-real-estate loans over last year, and 37% reported a decrease in demand. District banks increased the amount of collateral needed to acquire a loan in the third quarter of 2011, compared to 2010. Although, only 11% of banks reported the need for more collateral to acquire a loan.
The districts average loan-to-deposit ratio was 69%, the lowest level since 1997. This percent was, on average, 8.5% points below the desired levels reported by the respondents.
4th Quarter Outlook
Of those that responded, bankers expect non-real-estate loan volumes to stay the same through the fourth quarter with increases in Iowa and Indiana to be offset by decreases in Wisconsin and Illinois. However, the volume of livestock loans is forecasted to drop for all district states in the fourth quarter of 2011 relative to 2010. However, for operating loans, and grain and storage loans, there were more respondents expecting enlarged volumes than those expecting smaller volumes.
The Federal Reserve Bank of Chicago’s second quarter survey of Farmland Values and Agricultural Credit Conditions Report is a summary of the 7th District’s value of farmland, farm loan portfolio performance, and on-farm income. The 7th District consists of the entire state of Iowa, and portions of Illinois, Indiana, Wisconsin, and Michigan.
-Colvin
The outlook for farmland values in the fourth quarter are promising as 216 bankers who responded to the October 1st survey believe values will rise through the end of 2011. 39% of the survey respondents anticipate an increase in farmland values from October through December 2011 and only 2% anticipate a decrease.
Farmers are expected to be the primary buyers of farmland as 60% of respondents predict an increase in demand for farmland among farmers over the next three to six months, whereas 3% forecast a lower demand. 41% of respondents also expect greater demand from investors over the next three to six months, whereas 16% expect a decrease in demand.
More farmland is expected to be up for sale in the next three to six months, due to the appreciation in farmland and commodity prices.
Earnings
According to the U.S. Department of Agriculture (USDA) forecasts, 2011 net farm income is anticipated to increase $24.5 billion from 2010, totaling $103.6 in 2011. Subsequently, survey respondents anticipated higher net cash earnings for fall and winter 2011 relative to the 2010 fall and winter.
A drop in corn and soybean prices has not reduced optimism for farm income as 74% of respondents expect a rise in net cash earnings for crops, as oppose to only 9% expecting a decrease. October corn and soybean prices remain above last year's levels as corn is up 37% and soybean up 17%.
Livestock producers are expected to enhance earning this fall and winter. The USDA forecasts a $22.7 billion increase in livestock production for 2011 compared to last year. Prices for hogs, cattle and milk were 29%, 22%, and 7.6% higher this October compared to last October. In addition, feed costs have declined which in turn boosts net income for livestock producers.
The rise in net farm income stems from gains of $34.7 billion in the value of crop production and $22.7 billion in the value of livestock production. Increased levels of farm income and heightened demand for farmland continue to support gains in agricultural land values.
Credit
Agricultural credit condition continues to improve across the 7th district in the third quarter of 2011. Interest rates have trended lower than the 2nd quarters historically low levels. The districts average interest rate on agricultural real estate loans fell to 5.36%. On average, operating interest rates fell to 5.66% for the district. Iowa posted the lowest rate for farm mortgages at 5.24% and Indiana had the lowest rate for operating loans at 5.44%.
The index of funds available for the third quarter of 2011 equaled its highest value since 1987. 52% of responding banks indicated there were more funds available during the third quarter this year compared to last year. Only 3% indicated there were fewer funds available this year compared to last year.
Demand for non-real-estate loans continued to decline. Only 18% of respondents reported higher demand for non-real-estate loans over last year, and 37% reported a decrease in demand. District banks increased the amount of collateral needed to acquire a loan in the third quarter of 2011, compared to 2010. Although, only 11% of banks reported the need for more collateral to acquire a loan.
The districts average loan-to-deposit ratio was 69%, the lowest level since 1997. This percent was, on average, 8.5% points below the desired levels reported by the respondents.
4th Quarter Outlook
Of those that responded, bankers expect non-real-estate loan volumes to stay the same through the fourth quarter with increases in Iowa and Indiana to be offset by decreases in Wisconsin and Illinois. However, the volume of livestock loans is forecasted to drop for all district states in the fourth quarter of 2011 relative to 2010. However, for operating loans, and grain and storage loans, there were more respondents expecting enlarged volumes than those expecting smaller volumes.
The Federal Reserve Bank of Chicago’s second quarter survey of Farmland Values and Agricultural Credit Conditions Report is a summary of the 7th District’s value of farmland, farm loan portfolio performance, and on-farm income. The 7th District consists of the entire state of Iowa, and portions of Illinois, Indiana, Wisconsin, and Michigan.
-Colvin
Posted by Colvin & Co. at 11/17/2011 5:30 AM 
Categories: Farmland
Tags: agriculture farmland corn commodities farming soybeans USDA Iowa Wisconsin Illinois Land Value Livestock Indiana
Categories: Farmland
Tags: agriculture farmland corn commodities farming soybeans USDA Iowa Wisconsin Illinois Land Value Livestock Indiana
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