AgLetter

AgLetter Insights: Agriculture Yields Stay Strong as Prices Rise (November 2022)

Crop yields have been strong in the Seventh District and commodity prices robust, according to the third quarter 2022 issue of the Chicago Fed AgLetter. Its author, David Oppedahl, a policy advisor at the Chicago Fed, discusses these and other topics covered in the latest and previous issues, including rising farmland values and the impact of the war in Ukraine on Midwest agriculture.

The conversation comes in advance of the Chicago Fed’s Midwest Agriculture Conference—a November 29 in-person and online event examining barriers to entry in Midwest farming and family-farm generational transitions. Register here.

Q: Despite some challenging meteorological conditions, are you anticipating crop revenues to rise year over year again?

A: Yes, in the five-state region around Chicago, corn and soybean revenues both will be up from a year ago, even though the yields—the amounts of crop per acre—are going to be down slightly.

Q: And is that a surprise?

A: Well, it's not a surprise in the sense that prices for corn and soybeans are well up from a year ago. But given what happened earlier, with late planting and some drought in portions of the District, it is a surprise that the yields and the output will be as large as they’re looking. Even though corn and soybean yields are down a bit from last year's records, they’ll still both be the second largest for this five-state region on record.

Q: Stepping back a bit, what does the third quarter of 2022 tell us about the state of Midwest agriculture?

A: That it's been pretty resilient. It’s a period where farm production is strong. The input costs have been up pretty dramatically as well. So that's creating a bit of pressure on the margins for agricultural producers. And it's a period where the momentum of increases in farmland values has been maintained, even if there's a slight trailing off from the very fast rates of increase that we've seen in the past year.

Q: Yes, how are farmland values doing, especially in light of rising interest rates?

A: A few of the bankers we surveyed responded that they saw some decrease in the interest in farmland due to rising interest rates. But still, even with a very sharp increase in the rates in loans for agriculture, farmland values overall saw a 20 percent increase from a year ago, with some states’ farmland values rising more rapidly than other states’. Leading the way in the District, Indiana’s farmland values were up almost 30 percent from a year earlier.

Q: Are you seeing signs of a slowing or a softening in the agriculture industry in the region?

A: There doesn't seem to be a real slowing at this point, as we're in the harvest. We're in the period when things are moving along rapidly. But there are, of course, some potential issues. I already mentioned the higher costs for inputs. And then there's been a restriction in barge travel on the Mississippi River, given the drought that's hit many parts of the U.S. that feed into the Mississippi River system. And so, because the barges can't move as fully loaded and they can't have as many, then that's creating lower prices for farmers.

Q: For the second quarter issue of AgLetter, you were concerned about the war on Ukraine. Is that still having an impact? And while we're on the topic of overseas developments, has the strong dollar relative to foreign currencies had any kind of effect on Seventh District agriculture?

A: Both factors, of course, are playing a role, but it seems like other, bigger factors are overwhelming them. In the past year, anyway, we had a record for the fiscal year in ag exports from the United States. So the dollar has not pushed down exports. They maybe could have been even higher if the dollar were not so strong, but certainly there's demand for our products. And part of that probably comes back to the fact that Ukraine had been constrained in how much they were able to export.

Q: What other trends are you keeping an eye on into the fourth quarter and next year?

A: The repayment rates for agricultural loans continue to be quite strong as there is a lot of income that's helping farmers to continue to make payments on their loans promptly. Our respondents were anticipating fewer forced sales or liquidations of farm capital assets owned by financially distressed farmers. So those are some of the kinds of things that you want to keep an eye on.

And it's a big change from, like, three years ago when those trends were moving in the other direction—the kind you don't want to have, where there had been a number of years of leaner farm income—and so then you were starting to see repayment problems spike up. But now it's thankfully in the other direction.

Q: Finally, what do you want people to know about the upcoming agriculture conference?

A: We’re going to look at some key issues in terms of beginning, young, minority, and women farmers and how they're held back from getting into agriculture in some ways. We’ll also talk about passing on a farm between family members—which can be another factor that can hold people back from gaining access to farm ground.

For the latest data and insights, read the third quarter issue of AgLetter.

Data on credit conditions at Seventh District agricultural banks and on farmland values in the Seventh District are available for download as spreadsheets. Recent data for credit conditions are also available on the third page of the AgLetter.

Seventh District Credit Conditions
Seventh District Land Values