Farmland values are falling for the fifth year in the Midwest, and one factor in the decline is “muted expectations for farm income” this year, said the Chicago Federal Reserve Bank on Thursday. “The profitability of many corn and soybean farms will almost surely fall from their 2018 levels — possibly by a lot for some,” said the bank’s quarterly AgLetter, because market prices are unlikely to rise enough to offset the expected lower yields from late-planted crops.
Like regional Feds in Kansas City, Minneapolis, and St. Louis, the Chicago Fed said farm bankers in its district reported that the rainiest spring in a quarter-century, accompanied by flooding in some areas, affected a large portion of their borrowers. Some 24 percent of borrowers, it said, were significantly affected, and an additional 45 percent were modestly affected.
An Iowa banker said, “Farmers are more optimistic with the recent surge in prices and the government payments,” a reference to the billions of dollars in trade payments to farmers by the Trump administration. Crop conditions in Iowa are better than in Illinois, Indiana, and Michigan. In Illinois, a banker said uncertainty about a smaller harvest “has everybody in wait-and-see mode.”
“The portion of the district’s agricultural loan portfolio reported as having ‘major’ or ‘severe’ repayment problems, 6.2 percent, had not been highest in the second quarter of a year since 1999,” said the AgLetter. “In addition, renewals and extensions of non-real-estate farm loans in the district were up from a year ago.” The Chicago Federal Reserve district includes Iowa, the northern half of Illinois, most of Indiana, two-thirds of Wisconsin, and Michigan except for the Upper Peninsula.
In a video summary, David Oppedahl, senior business economist for the Chicago Fed, said there was a widespread expectation that “some of these agricultural markets … will not come back the way they were” before the trade war. “China will never probably want to buy as high a percentage of their soybeans from the United States as they did before the trade dispute.”
Farmland values in the Midwest were 1 percent lower this summer than they were during the April-May quarter of 2018. Other regional Feds reported stable farmland values last week.
The USDA is scheduled to update its estimate of farm income at the end of this month. In March, it forecast net farm income, a measure of wealth, of $69.4 billion this year, a $6 billion increase from 2018 but the lowest total since $69.2 billion in 2009.