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Serving: WI

Midwest Farmland Values Begin to Stabilize

Land buying starting to cool after two years of double-digit gains.

Third quarter farmland values were unchanged from those of the second quarter of 2006, and the year-over-year increase slowed to 7% for good agricultural land in the Midwest. That's according to the latest survey of agricultural lenders in the Seventh Federal Reserve District. Based on a questionnaire of more than 241 rural bankers for the three month period, lenders say land buying is beginning to cool after two years of double-digit gains. However, about a quarter of the respondents expected land values to increase in the fourth quarter.

The survey indicated that agricultural credit conditions worsened from the third quarter of 2005 in Wisconsin, Iowa, Illinois, Indiana and Michigan. Loan repayment rates were also down from the third quarter a year earlier, while loan renewals and extensions were up. Average interest rates on agricultural loans stopped moving upward for the first time since the start of 2004.

Wisconsin respondents painted a dire picture of net cash income for the state, as 86 percent expect declines from dairy operations and 35% predict declines from cattle and hog operations. Not surprisingly, almost 10% more Wisconsin bankers anticipated lower overall demand for land by farmers.

Reserve Economist David Oppedahl says for the fourth quarter of 2006, 30% of the bankers expected higher non-real-estate loan volume and 12% expected lower volume than in 2005. More bankers anticipated higher rather than lower real estate loan volume. The story for Michigan and Wisconsin on expected farm loan volume differed from the rest of the district, reinforcing a pattern that dominated the current survey results.

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