Land values continue to rise in a large chunk of the Corn Belt, particularly where the Chicago Federal Reserve District asks bankers to report on land prices. The Chicago Fed monitors farmland values and credit conditions in Iowa, the northern two-thirds of Illinois and Indiana and throughout Michigan and Wisconsin. The bottom line is that the value of good farmland held steady between the first and second quarter of the year, but compared to the same period of 2009, land values are 6% higher.

If you are buying farmland, selling farmland or plan to use its asset value to secure financing for the 2011 cropping year, any change in land value is important. When Chicago Fed Ag Economist David Oppedahl surveyed 198 ag bankers in the Fed District, 85% expected stability in land values; the other 15% split between rising and declining values. The 6% difference between the second quarter of 2009 and the second quarter of 2010 was the fact that land values were weakening in 2009. That weakness has reversed course and resulted in the 6% difference. Wisconsin was the only state to have lower land values in 2010 compared to 2009, and Oppedahl says that is a function of the dairy economy. For the past 12 months, land values were up 5% in Illinois, 4% in Indiana and 8% in Iowa. There were insufficient sales in Michigan to record a trend.

Oppedahl says the earnings stream has stabilized when commodity prices are compared to year ago levels, and another benefit is the 4% projected increase in yield for the five states. National production, consumption and carryover levels are expected to benefit the states in the Chicago Fed District because of their dependence on corn and soybeans.

“Rising demand for U.S. grain should provide support for both corn and soybean prices, which in turn will enhance district farmland values,” says Oppedahl. “This year's higher livestock prices have provided an additional boost to farm income in the district.” He adds that the 85% of bankers expecting stable land prices say the trend will remain from the second to the third quarter.

The ag economist also says credit conditions were improving in the five states for the April through June period. Demand for operating and machinery loans was slightly less than 2009. Banks reported having more funds available for loan, and 72% indicated they were not going to increase their loan requirements. Repayment rates were still sluggish for non-real estate loans with 23% of banks seeing lower rates of repayments. Renewals and extensions of those loans were higher in 2010 than in 2009, but the number of severe repayment problem loans remained at 3.5%.

Interest rates charged by banks in the district dropped slightly, and is averaged at 6.12% for operating loans and 5.99% for farm mortgage rates. The broad-based survey also found bankers reporting more lending by dealers and input suppliers, a decline in real estate loans, and more loans guaranteed by FSA in the coming quarter.

Summary
Land prices and credit conditions are generally favorable in the Chicago Federal Reserve District, where local bankers report land prices stronger than they were 12 months earlier, held up by strong commodity prices and good yields for the current crop year. Interest rates are declining slightly for both land and operating loans, with only a modest weakening of loan repayment rates.