A Decelerating Trend in Farmland Prices

The Chicago Federal Reserve Bank issued their 2012 Second Quarter AgLetter last week and it indicated that the rapid acceleration in farmland prices over the last two years has moderated substantially.  For the district, year-over-year prices had risen by 12% in Indiana to a high of 24% for Iowa.  However, the increase in prices for the current quarter versus the first quarter of 2012 ranged from 1-2%.

Only 4% of the bankers surveyed expected prices to decrease, while 22% expected a price increase with the remainder expecting stable prices.

Noting how farmers have become depositors instead of creditors, 1986 was the last time that non-real estate agricultural loan demand recorded a value lower than its current reading of 69.  The index was as high as 109 just two years ago.

The index of funds availability also edged higher to a new record of 164.  Loan to deposit ratios continue to trend lower.  The current rate is about 68.1% and banks normally prefer a ratio closer to 78% and 79 percent of the banks reporting had a ratio lower than this.

Ag interest rates continued to move lower to all time lows of 5.27% and 4.94% for operating loans and real estate loans, respectively.

Paul Neiffer, CPA