By DOUG SCHMITZ

Iowa Correspondent

CHICAGO, Ill. — In the third quarter of 2017, farmland values for the Seventh Federal Reserve District were down 1 percent from a year ago, according to the Federal Reserve Bank of Chicago (FRBC).

“Moreover, on a year-over-year basis, “good” farmland values were little changed for the fourth quarter in a row,” said David Oppedahl, FRBC senior business economist.

According to the 201 agricultural bankers who responded to an Oct. 1 FRBC survey, district farmland values were unchanged overall in the third quarter of 2017 from the second quarter.

“The vast majority of survey respondents expected the district’s agricultural land values to be stable during the fourth quarter of 2017,” he said, “but 25 percent of them expected a decrease in farmland values in the final quarter of 2017 and 2 percent expected an increase.”

In addition, district agricultural credit conditions deteriorated in the third quarter of 2017, he said.

“For the third quarter, the availability of funds for lending by agricultural banks was down relative to a year ago – the first such occurrence in 11 years,” Oppedahl said. “However, for the third quarter, the demand for non-real estate loans was up, relative to a year ago.

“The result was a surge in the average loan-to-deposit ratio for the district to 77.4 percent – its highest level in nine years,” he added.

He said district farmland values saw a year-over-year decrease of 1 percent in the third quarter of 2017.

“The district did not experience a year-over-year decrease or increase in its agricultural land values greater than 1 percent in the past four quarters,” he said. “Such relative stability in farmland values had not occurred in the district since 1970.”

In fact, Illinois and Indiana farmland values were down on a year-over-year basis (3 percent and 4 percent, respectively), while Iowa and Wisconsin farmland values were both up 2 percent, with the district’s farmland values remaining unchanged from the second quarter of 2017.

“Difficult weather conditions during planting season, a trying drought, and heavy rains during harvest all threatened to batter district crops this crop year,” Oppedahl said.

Chris Hurt, Purdue University professor of agricultural economics, told Farm World, the same flattening out of the decline in farmland values occurred in the Easten Corn Belt, according to a June Indiana farmland values survey.

“High quality land was basically flat, and average quality was down 1.6 percent,” he said. “This causes some to ask if the downward movement is coming to an end.”

Hurt said the supportive factors that kept farmland from dropping more in 2017 were: 1. A smaller-than-normal supply of land on the market; 2. A continuation of very low interest rates; and 3. Record yields for corn and soybeans (not for every state or farmer, but on average).

“Corn yields last year were a record at the time – of course exceeded this year,” according to a Nov. 9 USDA report, he added.

Oppedahl said most survey respondents (73 percent) predicted farmland values to be stable in the fourth quarter of 2017, while 25 percent of responding bankers expected farmland values to decrease in the October-December period of 2017 and 2 percent expected farmland values to increase.

In addition, respondents anticipated notably weaker demand by farmers (and to a lesser extent by non-farm investors) to acquire farmland this fall and winter, compared with a year ago.

Moreover, Oppedahl said, a fairly tight supply of available properties for sale may have contributed to the continued stability of farmland values.

He said 19 percent of the responding bankers forecast an increase in the volume of farmland transfers, relative to the fall and winter of a year ago, and 25 percent forecast a decrease.

“Many agricultural prices remained fairly close to their levels of a year ago, and some even rose,” Oppedahl said.

For the third quarter of 2017, he said corn prices were flat, relative to the third quarter of last year, based on USDA data; soybean prices were down 5.2 percent from the third quarter of 2016.

“Nevertheless, soybean net returns were likely to exceed those of corn on a per-acre basis for most farm operations,” Oppedahl said.

“On the whole, agricultural prices did not seem as bleak as a year ago,” he added, “but there was not much (if any) improvement for most farm operations – and farmland values.”

Hurt said, “Iowa corn and soybean revenues per acre will be down $40 to $47 from 2016 crops. (Neighboring states are $19 to $60 per acre, depending on crop and state).”

Dave Miller, Iowa Farm Bureau Federation director of research and commodity services, told Farm World the better quality farmland in Iowa will likely hold its value into the 4th quarter of 2017 and into 2018.

“Strong yields and low interest rates continue to be supportive of current land values, despite the continuation of depressed corn and soybean prices,” he said.

“Below-average productivity land could see some weakness in the coming quarters as yields on these lands were not as resilient in the face of more variable weather experienced in 2017 as were the better quality farmlands,” he added.

Hurt said the supply of farmland on the market isn’t likely to change much in 2018.

“I am inclined to expect short-term interest rates to rise about 1 percent by the end of 2018 and long-term mortgage rates to rise about 1/2 percent,” he said.

“Overall, I am inclined to guess that farmland prices will resume their downward adjustment of about 4 percent a year for the next two years,” he added. “That will vary by land quality, location, and other local factors.”