Grain Markets Settle, Allowing Farmland Values To Improve

May 19, 2015

Farmland values in the upper Midwest increased 100 basis points during the first quarter of 2015, after declining over the past six months. Farmland values from the first quarter of 2014 were unchanged due to the large decline in grain prices over the past year. Credit conditions continued to send mixed signals at a time when farmers are recovering from a decline in farm income.

Farmland Values

The Seventh Federal Reserve District, which is made up of portions of Illinois Indiana, Iowa, Michigan, and Wisconsin, reported a 1% increase in farmland values during the first quarter 2015. The quarterly increases in Indiana 1%, Iowa 2%, and Wisconsin 1%, were able to offset the 1% decrease reported in Illinois.

Respondents suggested the settling of grain markets over the first quarter of 2015, in relation to the last two quarters of 2014, allowed farmland values to increase. The dramatic decline in grain prices during the second half of 2014 erased any potential for quarterly increases during those two quarters.

Annual farmland values were unchanged. The increases in Michigan and Wisconsin farmland values, of 5% and 8% respectively, offset the declines reported in Illinois, Indiana and Iowa. The report eluded that the annual decline in Illinois, Indiana, and Iowa was due to the decline in corn and soybean prices over the past year. Over 90% of crop revenues in Illinois, Indiana, and Iowa come from corn and soybean sales, opposed to Michigan and Wisconsin where only 54% and 63% of their crop revenues are tied to those two crops.

Credit Conditions

Farmers continued to show a need for financing as the index for non-real-estate loan demand increased for the third consecutive quarter. In contrast, the loan repayment rate index declined for the fourth consecutive quarter showing a growing divide between the two indices. Respondents have suggested for the past six months that banks would tighten lending and increase collateral requirements if the trend of increasing loan demand and falling repayment rates were to continue. Though the trend has continued, bankers reported that fund availability remains high and interest rates on operating loans were reported at all-time survey lows.
Outlook

Respondents were relatively positive about the coming quarter. The majority of bankers surveyed believe farmland values would remain stable or increase in the second quarter of 2015, an improvement from the past two quarters. Credit conditions over the next six months are expected to remain stable. Respondents believed that non-real-estate loan demand would continue to grow as farm income expectations remain low.

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Video: Evolution of Beef Cattle Farming

The Clear Conversations podcast took to the road for a special episode recorded in Nashville during CattleCon, bringing listeners straight into the heart of the cattle industry. Host Tracy Sellers welcomed rancher Steve Wooten of Beatty Canyon Ranch in Colorado for a wide-ranging discussion that blended family history and sustainability, particularly as it relates to the future of beef production.

Sustainability emerged as a central theme of the conversation, a word that Wooten acknowledges can mean very different things depending on who you ask. For him, sustainability starts with the soil. Healthy soil produces healthy grass, which supports efficient cattle capable of producing year after year with minimal external inputs. It’s an approach that equally considers vegetation, animal efficiency, and long-term profitability.

That philosophy aligned naturally with Wooten’s involvement in the U.S. Roundtable for Sustainable Beef, where he served as a representative for the Colorado Cattlemen’s Association. The roundtable brings together the entire beef supply chain—from producers to retailers—along with universities, NGOs, and allied industries. Its goal is not regulation, Wooten emphasized, but collaboration, shared learning, and continuous improvement.