According to the Federal Reserve Bank of Chicago’s AgLetter, in its Seventh District survey of agricultural bankers, indications are that the drought did slow the explosive growth in land values of the past few years, but 22 percent of respondents anticipated higher land values, while just 4 percent anticipated lower values. The report said, “…the drought did not seem to have stifled all the momentum of rising agricultural land values.” The survey indicated the rise in the value of “good” farmland was one percent in the second quarter relative to the first quarter of 2012.
The Seventh District includes Iowa, Wisconsin, Illinois, Indiana and Michigan. It does not include Minnesota.
Statistics showed that the year-over-year increase in the value of farmland in the Seventh District in the second quarter was 15 percent, down from the same period of the past five quarters, but growth during that period was modest “only in the context of exploding farmland values over the past few years.” Several respondents indicated the demand for higher-quality farmland still outpaced the supply of such great ground.
In fact, banker respondents told the Fed that as drought continues to spread across the Upper Midwest during the third quarter, farmland values “would likely level off but not face much downward pressure from the drought’s effects.” Just four percent of respondents predicted a value decline in the third quarter. Twenty-two percent of respondents forecasted farmland values to rise in the third quarter. AgLetter said, “With over 70 percent of the respondents expecting stable agricultural land values for the third quarter of 2012, the consensus was for farmland markets to move sideways.”
However, the spreading drought is having dire effects on corn and soybean output across the Upper Midwest. The AgLetter said crops across the Seventh District are being reduced dramatically. Prices have risen accordingly. The USDA has raised price interval estimates for the 2012-2013 crop year to $7.50 to $8.90 per bushel for corn, and $15 to $17 per bushel for soybeans. That will partially offset the drought’s impact on producers.
In addition to higher crop prices, crop insurance payments will also offset drought impact on farm income. Only 22 percent, for instance, of U.S. corn acres for 2011 were uninsured. Also, the USDA has declared most of the Upper Midwest as a disaster area, releasing additional funds and allowing for lower rates on some loans.
The disaster relief, plus additional programs approved by Congress would, in particular, assist livestock operations. Typically, livestock producers do not have the extensive insurance coverage that crop producers do, so assistance can make a huge difference. This is especially true since livestock prices have not risen on a par with crop pri-ces, while they have had to absorb substantially higher feed costs.
The good news, at least for states within Chicago’s Seventh District, is that ag credit conditions have not deteriorated during the drought. Funds availability improved from a year ago, respondents said. The index of funds availability edged higher to 164, another survey record, the Fed said.
Wrap up: Wary of drought conditions? Yes. Scared off the playing field by them? No.
I’ll see ya.
An Iowa native, Peter Graham has been a rural newspaper editor for 40 years. He currently edits a twice-weekly paper in Western Iowa. You can contact him at (712) 642-2791 or [email protected] times.com