Wisconsin Ag Connection - Drought Slows Momentum of Midwest Farmland Value Spike

Wisconsin Ag News Headlines

Drought Slows Momentum of Midwest Farmland Value Spike
Wisconsin Ag Connection - 08/20/2012

The value of farmland in the upper Midwest continued to increase by double-digit percentage points during the second quarter of 2012 when compared to a year ago. But the extreme drought conditions led to a noticeable slowdown in quarter-to-quarter comparisons this year. According to the latest survey of agricultural lenders in the Seventh Federal Reserve District, farmland values between April through June were up 15 percent from the same time last year; and were only one percent higher compared to the previous quarter.

In the most recent questionnaire of 205 rural bankers, survey respondents noted that the district has seen the the smallest quarterly increase in the past two years; with several indicating that demand for higher-quality farmland still outpaced the supply of such ground.

"Iowa had a year-over-year gain of 24 percent in its farmland values, marking yet again the highest increase among district states," said Reserve Economist David Oppedahl. "Wisconsin was the only state that matched its year-over-year increase for the first quarter of 2012 (of 13 percent)."

Illinois and Indiana has increases of 15 percent and 12 percent, respectively. Michigan numbers where not yet available.

Oppedahl adds that bankers are predicting that as the drought continues to spread across much of the region, farmland values would likely level off, but not face much downward pressure. In 1988, which is the last time such an extensive drought took hold of the district, corn and soybean yields dropped from the previous year by about 40 percent and 30 percent. But newer seed traits and better farming practices should limit the damage from the current drought.

"The U.S. Department of Agriculture estimated that the nation's 2012 harvest of corn for grain will be 13 percent smaller than the 2011 harvest," he says. "It also estimated that the five district states' 2012 harvest of corn for grain will be 22 percent less than the previous year's harvest. Soybean production was estimated to decline 12 percent for the nation and 19 percent for the five district states."

Besides higher crop prices, crop insurance payments will partially offset the drought's impact on farm income.

Looking ahead, few responding bankers thought repayment problems would creep up because of the drought. Most anticipated the district's overall nonreal-estate agricultural loan volumes to decline in the third quarter of 2012 compared with the same quarter of 2011. However, such volumes in Indiana and Wisconsin were expected to increase. For the July through September period of 2012, farm mortgage volumes were forecasted to grow slightly more than in the same period of 2011.

Send this article to a friend

Other Wisconsin Headlines