Biggest Drop in Land Prices Since 1985
Midwest farmland values plummet during first quarter
Compiled by staff
Published: May 22, 2009
According to the May 2009 agricultural newsletter of the Federal Reserve Bank of Chicago the value of farmland within its district fell 6% during the first quarter of 2009, which is the largest quarterly decline in the last 24 years. The last time such a drop was seen was 1985 in the midst of the farm crisis of the 80s.
During the first three months of 2009 farmland prices dropped 7% in both Iowa and Wisconsin, 4% in Indiana, and 3% in Illinois. A survey of 227 banks within those four states showed that about a third expect prices to further erode during the second quarter. Chicago Fed business economist David Oppendahl said a contributing factor is the fall below last year's levels of market prices for corn and soybeans.
"Corn prices were 8.5% lower than the prior year and soybean prices were 13% lower," said Oppedahl. "Input costs have fallen as well, but respondents commented that farm incomes were unlikely to be above break-even levels for 2009."
Cash rental rates in the area increased by an average 7.1%, which is the third largest increase since 1981 trailing only 2007 and 2008. As prices for farmland have stalled, cash rental rates have outpaced the increase in land prices lowering the price-to-earnings ratio for farmland. As far as loans were concerned, respondents only expected higher loan demand for operating loans and loans guaranteed by the Farm Service Agency. Interest rates had reached historically low levels as of April 1, averaging 6.20% for new operating loans and 6.14% for farm real estate loans. The average loan-to-deposit ratio was 76.2%, which is about 4% below the preferred ratio.
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Tagged: farm, soybeans, soybean, Farm Service Agency, input costs
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