June 13, 2006


Farmland values rising in US Corn Belt



The average value of agricultural land in the US Corn Belt increased 9 percent in the past year, according to a quarterly report by the Seventh District Federal Reserve Bank in Chicago.


The report, based on a survey by bankers in the Seventh District, found slower growth rates in the states of Illinois and Iowa.


Almost half of the respondents felt the demand for farmland was higher than it was a year ago, although the share purchased by farmers fall even as more land is being sold.


Land prices rose strongly in Michigan and Wisconsin, where the strong housing market is propping up land prices.


Higher input costs, higher interest rates and low prices for agricultural products led to a tighter credit situation for farmers, the bankers reported.


As of April, the District average for interest rates on new operating loans was 8.30 percent, over 200 basis points above the cyclical low two years ago.


Interest rates for farm mortgages have risen 161 basis points in two years to an average of 7.48 percent, almost half way back to the peak of 2000.


Bankers expect to make more agricultural loans in the second quarter of 2006 than 2005. Most would be operating loans, with more than half of the respondents foreseeing higher loan amounts.