Farmland values in the Seventh Federal Reserve District held completely steady in the second quarter of 2026 compared with a year earlier, marking the slowest year-over-year growth since late 2024, according to a new report from the Federal Reserve Bank of Chicago. The survey of 79 agricultural lenders across Illinois, Indiana, Iowa, Michigan, and Wisconsin found that after adjusting for inflation, farmland values actually dropped 3.7% year-over-year—the steepest real decline for the region since the third quarter of 2016. Several lenders noted that investment activity for data centers and solar and wind farms helped prop up land prices even as farm economics weakened.
Credit conditions deteriorated sharply across the District. The share of farm loans facing "major" or "severe" repayment problems climbed to 3.7% in the second quarter of 2026, up from 2.9% a year earlier and the highest level since 2020. Meanwhile, the portion of farm loans with no repayment issues at all fell to 88.5% from 90.1% the previous year. Repayment rates for non-real-estate farm loans dropped, while renewals and extensions of such loans rose. Demand for non-real-estate farm loans increased, with 30% of lenders reporting higher demand compared with a year ago and only 19% seeing lower demand. The District's average loan-to-deposit ratio reached 80.7% in the second quarter—the highest reading since data collection began in the 1970s, though still more than 3 percentage points below what bankers said they'd prefer. Interest rates on farm operating loans stood at 7.12%, feeder cattle loans at 7.14%, and farm real estate loans at 6.79% in the second quarter, all up slightly from the first quarter but down in inflation-adjusted terms for the fourth consecutive quarter.
An Iowa respondent said, "Commodity price volatility and elevated production expenses are the factors weighing most heavily on credit conditions." Looking at farmland valuation, 43% of survey respondents viewed District agricultural land as overvalued, while 57% saw it as appropriately valued—not a single lender reported it as undervalued. A Wisconsin lender observed, "At some point farmland values should plateau as outside pressure from solar and data centers subsides." During the first half of 2026, District banks made more farm operating loans and farm mortgages than normal, while lenders reported that Farm Credit System institutions and input suppliers also lent more funds to agriculture than usual, but life insurance companies pulled back.
The combination of flat nominal land values and rising debt stress reflects the squeeze facing Midwest farmers: commodity price swings and high production costs are eroding farm income even as non-agricultural buyers compete for farmland. The record-high loan-to-deposit ratio suggests banks are stretching to meet borrower demand despite tighter conditions. Real interest rates have fallen for four straight quarters as inflation has risen faster than nominal rates, offering some relief to borrowers but also signaling that lenders haven't been able to fully pass through their own funding costs. The divergence between states—Illinois and Iowa saw year-over-year land value increases while Indiana and Wisconsin experienced declines—points to varying local market pressures, with some areas benefiting more from alternative land uses like renewable energy projects.
Looking ahead to the third quarter of 2026, lenders expected higher volumes for non-real-estate agricultural loans, particularly for operating loans, feeder cattle loans, and Farm Service Agency-guaranteed loans, compared with the same period in 2025. However, they anticipated that farm machinery, grain storage construction, and farm real estate loan volumes would shrink below last year's levels. Only 5% of responding lenders expected farmland values to rise in the third quarter, while 81% anticipated stability and 14% predicted declines. The outlook suggests farmers will lean more heavily on operating credit to navigate volatile commodity markets and elevated costs, even as bankers grow increasingly cautious about land values and repayment capacity.