Hot growth in Iowa farmland values eases

Iowa farmland values rose at a slightly slower  pace in the quarter ended July 1, the Chicago Fed reported.

The value of "good" Iowa farmland rose 3 percent  in the quarter. The change brings  the year-over-year increase in Iowa farmland values to 20 percent.

"There may be some slowing of the increase, but when you've had increases of 20 percent or more in the past year that's not unexpected," said Chicago Fed economist David Oppedahl, who authored the report. He said soybean and corn prices that had been strengthening leveled off somewhat over the summer. Combined with reduced yield forecasts, he said the leveling off of grain prices may have slowed the bids for farmland.

The USDA earlier reported that Iowa farmland values rose  23.9 percent in 2011, the fastest of any state. The increase brought the average value of Iowa crop land to $5,700 per acre, the USDA reported.

For the second quarter, the rise in Iowa farmland values was slower than the 4 percent increase in the entire Chicago Fed district.

The findings are based on a survey of 226 agricultural bankers.

At 17 percent, the year-over-year increase in the value of Seventh Federal Reserve District farmland was the largest recorded since the 1970s , the Chicago Fed reported in its August agricultural newsletter.

The quarterly increase of 4 percent for the Seventh Federal Reserve District was smaller than the preceding quarter, and none of the states within the district reported a higher quarterly increase than during the preceding quarter. The Seventh Fed District includes Iowa and parts of Wisconsin, Illinois, Indiana and Michigan.

Some bankers surveyed expressed concerns about the risks of farmland prices becoming overheated, but those remained a minority. Just 2 percent of the bankers responding said they expect farmland values to fall in the third quarter, compared to 36 percent expecting higher farmland values and 62 percent expecting no change.

The Chicago Fed has made rising farmland values the theme of its annual agricultural conference on Nov. 15 in Chicago. It will also explore rising cash rental rates in the Midwest.

Agricultural credit conditions strengthened in the second quarter, the report said. The percentage of agricultural loans perceived as having major or severe repayment problems decreased to 2 percent.  Repayment rates on non-real estate agricultural loans improved.

The report said strengthening credit conditions and weaker loan demand "created a very competitive  environment for farm lending" during the quarter. Bankers faced challenges maintaining their agricultural loan portfolios, the report said, let alone expanding them.