By Charlyn Fargo
They said it would happen – the rise in farmland values would have to come down at some point.
We may have hit that point.
Surveys of bankers conducted by both the Chicago and St. Louis Federal Reserve Banks show that Illinois farmland values declined overall for 2014. And bankers also expect values to decline into 2015.
In the Chicago area, the Seventh Federal Reserve District had an annual decrease of 3 percent in “good” farmland values for 2014, marking the first yearly decline since 1986. However, farmland values in the fourth quarter of 2014 remained largely the same as in the third quarter, according to survey respondents from 224 agricultural banks across the District.
Half of the respondents expected farmland values to fall during the January through March period of 2015, while only 1 percent remained hopeful that farmland values would rise in the areas surrounding their respective banks.
The Chicago District’s 3 percent decline in “good” farmland values was the first time since the third quarter of 2009 that the District suffered a year-over-year drop in farmland values. The streak of annual increases in District farmland values in real terms had reached 21 years before being broken in 2014. Still, at the end o f2014 the index of inflation-adjusted agricultural land values for the District was 68 percent higher than at its 1979 peak from the 1970s boom.
In the fourth quarter of 2014, Illinois, Indiana and Iowa experienced declines in agricultural land values on a year-over-year basis. Wisconsin had a modest increase and Michigan had no change.
The bankers blame lower corn and soybean prices for the drop in farmland values.
In the St. Louis District, which includes reporting from 39 agricultural banks in the Eighth Federal Reserve District throughout southern Illinois, quality farmland values, increased on average of 0.8 percent from one year ago. However, survey respondents remain pessimistic about farmland values over the next three months.
Several bankers expressed concerns about rising farm debt levels.
“The concentration that has taken place in farming and the aging of the farm population should be causing some concern as to the concentration of debt,” according to one Illinois banker whose quote was shared in the Agricultural Finance Monitor. “Some aggressive, especially young farmers and sometimes multiple-family operations have taken on large debt loads. This could become a problem if agricultural profitability reverts to more historical returns.”
