The Federal Reserve’s Seventh District just saw the first quarter-to-quarter decline in farmland values since the fourth quarter of 2016, according to its quarterly AgLetter.

Farmland values were 1 percent lower during the third quarter than they were during the second quarter for the district — which includes Michigan, Iowa and most of Indiana, Illinois and Wisconsin — according to 188 agricultural bankers responding to an Oct. 1 survey, the Chicago Fed agricultural newsletter said.

Even with that dip, farmland values in the district remained 1 percent higher than a year earlier, it said.

However, that 12-month increase in value was insufficient to keep pace with inflation. After adjusting the farmland values for inflation with the Personal Consumption Expenditures Price Index, they were down 1 percent during the third quarter compared with a year earlier.

“Almost two-thirds of survey respondents expected the district’s farmland values to be stable during the fourth quarter of 2018, but 32 percent of them expected a decrease in farmland values in the final quarter of this year and only 2 percent expected an increase,” the newsletter said.

Compared with a year ago, it said third quarter hog prices were down 17 percent. Dairy prices were down 9.8 percent and cattle prices were down 2.6 percent while corn prices were up 1.9 percent but soybean prices were down 5.6 percent.

“Agricultural land values would have experienced more downward pressure in the absence of exceptional crop yields,” the newsletter said. “In 2018, district-wide corn and soybean yields jumped to all-time highs — 198 bushels per acre for corn and 59 bushels per acre for soybeans.”

Third quarter repayment rates on non-real-estate farm loans were lower than a year ago, it said.

“Loan renewals and extensions on non-real-estate agricultural loans were higher in the third quarter of 2018 relative to the same quarter of 2017, with 43 percent of the responding bankers reporting more of them and just 1 percent reporting fewer.”

Only 2 percent of survey respondents expected farmland values in their bank service areas to increase during the fourth quarter. Nearly two-thirds predicted stable farmland values and 32 percent said they expected to see the values decline.

Loan collateral requirements tightened some from a year ago, with 25 percent of the survey respondents reporting their banks required more collateral and none saying their banks required less.

With crop net cash earnings expected to contract for the sixth successive year during the fall and winter from levels a year earlier, the newsletter said survey respondents expected loan repayment rates to decline.

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