Story by Brooke Bouma Kohlsdorf
Edited by Dave Price
A stall may be better than a fall, if you own the ground beneath you. It isn’t an earthquake-type panic for farmland owners in the Midwest. But it could be a little rumble for those thinking about selling.
The Federal Reserve Bank of Chicago put out a November report that sheds some new light on land values in the Midwest.
“The District’s agricultural credit conditions weakened on balance in the third quarter of 2024 relative to a year earlier, although average interest rates on agricultural loans decreased from the second quarter of this year,” the report stated.
The report covers the Seventh Federal Reserve District and is based on respondents from 119 banks who completed the October survey.
Seventh Federal Reserve District
llinois
Indiana
Iowa
Michigan
Wisconsin
Rising farmland values went on pause. The overall District saw no change in the third quarter land values of 2024 compared to a year ago. This comes after 18 quarters of year-over-year increases. That represents the end of a surge of more than four years.
The report also captured how farmland values didn’t just drop from the year before. Values have also been declining as the year progressed.
The Bank’s online AgLetter stated that values for “good” farmland in the District dropped by two percent in the third quarter versus the second quarter.
One other finding in the survey about the District could signal increased financial distress for some farmers, especially if it continues.
The report stated:
“For the July through September period of 2024, repayment rates for non-real-estate farm loans were lower than a year earlier. The index of loan repayment rates was 76 in the third quarter of 2024 (and was last lower in the second quarter of 2020), as 3 percent of responding bankers observed higher rates of loan repayment than a year ago and 27 percent observed lower rates.
Renewals and extensions of non-real estate agricultural loans were higher in the third quarter of 2024 than a year ago, with 32 percent of the responding bankers reporting more of them and 4 percent reporting fewer. An Illinois banker noted that ‘low grain prices are definitely affecting borrowers’ ability to pay off operating loans.’”
The AgLetter breaks down activity by state. Wisconsin was the only state of the five to realize year-over-year gain in farmland values (+4%). Illinois and Iowa dropped at similar rates (-1%). Indiana showed the largest depreciation in farmland values of the group. (-2%).
Note: Michigan didn’t have enough responses to put together an accurate assessment.
RELATED: Farmland in Wisconsin in a region that doesn’t sell often, was high quality, and managed well brought out 68 potential buyers. See how the farmland auction took four hours and attracted 200 people to watch how it played out in this article in Successful Farming.
The Federal Reserve Bank of Chicago’s survey measured sentiment about the future. Will values continue to stall, decline, or move up?
One Illinois respondent replied, “lower net farm income and cash flow difficulties will affect land values.”
In the third quarter of 2024, 55% of survey respondents considered farmland to be overvalued, and 45% considered farmland to be appropriately valued (none viewed farmland as undervalued).
With a majority of those surveyed believing that farmland in the District was overvalued, then it should not be a surprise that some expected values to drop more in this year’s final quarter.
4th Quarter Expectations for Farmland
Stable: 64%
Decline: 34%
Rise: 2%
Some of the pessimism about future farmland value extends into 2025.
The report stated: “…45 percent and 35 percent of survey respondents expected farmers and nonfarm investors, respectively, to have weaker demand to acquire farmland this fall and winter compared with a year earlier (less than 20 percent expected these groups to have stronger demand). Overall, respondents anticipated a drop in the volume of farmland transfers during this fall and winter relative to a year ago.”
RELATED: Check out how Midwest land values compare with other parts of the country in this report from USDA.
According to banking industry respondents, some of this could be linked to commodity prices. Net cash earnings (which include government payments) for crop and livestock farmers were expected to be lower during the fall and winter from their levels of a year earlier.
For crop farmers, 3% of survey respondents forecasted net cash earnings to rise over the next three to six months relative to a year ago, while 91% forecasted these earnings to fall.
The livestock sector faced dim prospects for income growth, but nothing like the slump facing the crop sector. The report says 22% of respondents think the District’s cattle and hog operations will see higher net cash earnings over the next three to six months relative to a year earlier. Meanwhile, 31% are forecasting lower earnings.
It is a modest outlook for many agricultural producers in a critical sector of the country following what had been more promising incomes at the beginning of the decade.
