Seventh District Agricultural Economy

The Seventh Federal Reserve District states of Illinois, Indiana, Iowa, Michigan, and Wisconsin continue to play a key role in the agricultural economy of the United States, as well as the world. Though agriculture's share of the total Seventh District economy is decreasing, it remains a very important part of the larger U.S. economy. Here is a quick overview of the agricultural economy of Seventh Federal Reserve District.

Seventh District agricultural output as a percentage of the U.S. total
(For selected products — 2003)

The Seventh District agricultural economy produces more than 40 percent of the U.S. annual output of corn, soybeans, and hogs. Additionally, more than 20 percent of the U.S. production of eggs and milk takes place in the Seventh District.

Agricultural exports by Seventh District states (Fiscal year 2002)

Seventh District states rank high in exports of agricultural products, especially corn and soybeans.

Agriculture's share of total Seventh District economy decreasing (Gross state product from production agriculture in the Seventh District as percentage of total Seventh District economy)

Over time, the relative importance of agriculture in the Seventh District has diminished. This chart shows agriculture now makes up less than 1 percent of the Seventh District's total economic output. The downward trend in share started long ago as the U.S. shifted from an agrarian to an industrialized economy, even as agricultural output has increased due to dramatic increases in productivity.

Productivity changes for major crops in the Seventh District

Source: National Agricultural Statistical Service, USDA

Over the past 40 years yields per acre have increased by more than 100% for corn and 60% for soybeans in the Seventh District. Improved seeds, equipment, pest control, and management practices have helped to substantially boost agricultural productivity in the last half century, enabling fewer farmers to produce more.

Larger drop in number of Seventh District farms than overall in the U.S. (Percent change in farm numbers from 1997-2002)

There was a nearly 6 percent decline in the number of farms in the Seventh District from 1997 to 2002, more than the 4 percent national decline. But, the numbers of the largest and smallest farms actually grew during this period.

Annual change in farmland values in the Seventh District

Source: Land Value and Credit Conditions Survey, Federal Reserve Bank of Chicago

This chart shows the average annual change in farmland values for the Seventh District, using data from the Chicago Fed's Land Value and Credit Conditions Survey. Farmland values account for a significant part of farm sector asset values and equity. As such, the movement in farmland values is an important indicator of agriculture's economic health. Farmland values have an impact on the owner's ability to borrow, and on the quality of a bank's loan portfolio, since they affect the borrower's financial position as well as the bank's collateral. Farmland values rose rapidly in the 1970s, partly due to inflation, and then crashed in the 1980s. Many farmers experienced financial difficulties at that time because both income and farmland values dropped.

Index of Seventh District farmland values (1981 = 100)

Source: Land Value and Credit Conditions Survey, Federal Reserve Bank of Chicago; Bureau of Labor Statistics, U.S. Department of Labor.

By constructing an index of farmland values, one can see that nominal values have recovered from the crash of the 1980s. However, values adjusted for inflation have never regained the levels prior to the crash.

State-by-state indexes of farmland values (1981 = 100)

Illinois

Indiana

Iowa

Wisconsin


Source: Land Value and Credit Conditions Survey, Federal Reserve Bank of Chicago

These indexes of farmland values show the relative changes over time for Seventh District states. Note: Insufficient data existed to construct an index for Michigan.

Interest rates charged on new farm loans in the Seventh District

Source: Land Value and Credit Conditions Survey, Federal Reserve Bank of Chicago

Based on data from the Chicago Fed's Land Value and Credit Conditions Survey, this chart shows the average interest rates charged on farm loans. Since farming is a very capital-intensive industry, many farmers make extensive use of borrowed funds. High interest rates mean larger expenses and less profit.

Real net farm income boosted by direct government payments to farmers

Net income in the farm sector after all expenses are subtracted from revenues. The black portion represents the amount of net income that consists of payments from the federal government.

Total net income was fairly high in 2005, unfortunately, much of it consisted of subsidy payments. These payments have been quite high since the farm financial crisis of the 1980s.

* Adjustable for inflation using the Consumer Price Index, with 2005 as the base year.