As policy advisor in the Economic Research Department at the Federal Reserve Bank of Chicago, David Oppedahl conducts research on the agricultural sector and rural development, as well as analyzes business conditions and the regional economy.
He directs the Federal Reserve Bank of Chicago’s survey of agricultural banks on agricultural land values and credit conditions and publishes the results in AgLetter — the Chicago Fed’s quarterly agricultural publication. In addition to his research, he monitors the regional economy through roundtables and other contacts, briefs senior staff on the agricultural economy, and organizes an annual Midwest agriculture conference.
IFT: What kind of education do you need to fulfill such a role? To be a policy advisor for a Federal Reserve Bank seems like a huge responsibility, how does one prepare for that?
OPPEDAHL: My job requires an understanding of rural life and farming, while also having a set of tools from training in statistics and economics. There’s not a set path for this kind of position, but one needs to have a mathematical foundation whichever route one takes. It’s an honor to serve the public in this role.
IFT: How do you stay on the cutting edge of issues?
OPPEDAHL: There are so many factors that impact agriculture, so it’s always a challenge to follow current events around the world and puzzle together the impacts for the farm sector. I also attend seminars and conferences to build up my knowledge and develop contacts with others that study agricultural trends. Research is a key function of my department, so I’m surrounded by talented economists.
IFT: Why is the Seventh Federal Reserve District (including all of Iowa and most of Illinois, Indiana, Michigan, and Wisconsin) so important in the ag/finance world?
OPPEDAHL: The Chicago Fed covers a majority of the Corn Belt, so our interest in agriculture dates back to when we opened in 1914. The agricultural economy of the Seventh District states produces around 40% or more of the U.S. annual output of corn, soybeans, and hogs. Additionally, more than 20% of the U.S. production of eggs and milk takes place in Seventh District states. So, there’s a substantial portion of total agricultural output (and lending) from our District, which provides influence on the farm financial sector given the size and number of operations. This phenomenon also led to the development of other key institutions, such as the Chicago Board of Trade and the Chicago Mercantile Exchange.
IFT: How does the agricultural lending world in the Midwest seem to be reacting to current conditions?
OPPEDAHL: Midwest farm lending has been slower since 2020 (according to our survey) as government support and higher prices for products boosted the sector, yet it seems likely that borrowing will increase as input costs have risen. The financial health of farm borrowers has strengthened in recent years. For the July through September period of 2022, repayment rates on non-real-estate farm loans were again higher than a year earlier. Also, renewals and extensions of non-real-estate agricultural loans were lower in the third quarter of 2022 than a year ago. Even so, collateral requirements for loans in the third quarter of 2022 were up slightly from the same quarter of last year.
IFT: What impact are rising interest rates having in the ag community and among farmers?
OPPEDAHL: Agricultural interest rates — in both nominal and real terms — increased rapidly during the third quarter of 2022 for the region. As of Oct. 1, 2022, our district’s average nominal interest rates on new operating loans (6.52%) and feeder cattle loans (6.58%) were at their highest levels since the third quarter of 2008; in addition, its average nominal interest rate on farm real estate loans (6.13%) was last higher in the fourth quarter of 2009.
In real terms (after being adjusted for inflation), the average interest rate for farm operating loans was slightly above zero in the third quarter of 2022, after being in negative territory for the four previous quarters; the average real interest rate on feeder cattle loans followed a similar trajectory over this period. The average real interest rate for farm real estate loans remained negative for the fifth quarter in a row, even after moving up 132 basis points during the third quarter of 2022.
IFT: What should farmers be looking at today in making their planting and financing decisions for 2023?
OPPEDAHL: Higher interest expenses will weigh on the cost structure for farm operations, but there also have been higher costs for fertilizers and many other inputs. Diesel prices have been dropping lately, so that may help some at the margin. So, farmers should analyze their costs for planting and decide which combinations of inputs will maximize the expected returns for their kinds of fields. It may not be the same approach that they’ve traditionally taken. Of course, cover crops and other ways to storing carbon could become bigger factors as government programs and markets begin to incentivize these activities.
IFT: Farmland values went up wildly most of this year and last, which was something you addressed in your November AgLetter. What are the takeaways from your analysis of land values in 2022? Is this trend likely to continue into early 2023?
OPPEDAHL: With farm incomes still robust, the district had a year-over-year gain of 20% in its agricultural land values in the third quarter of 2022. This was the fourth year-over-year increase in a row of at least 20% for district farmland values. After being adjusted for inflation, district farmland values were still up 13 percent in the third quarter of 2022 relative to a year ago; this was the fifth consecutive quarter with at least as large a year-over-year increase in real farmland values. While just over two-thirds of our 160 survey respondents anticipated the district’s farmland values to be stable during the fourth quarter of 2022, 2% anticipated district farmland values to go up again in the final quarter of this year and 7% anticipated them to go down.
IFT: When do you release the next AgLetter? As you prepare it are there certain areas or topics you are now researching?
OPPEDAHL: The next issue comes out on Feb. 9, based on data collected in January covering the fourth quarter of 2022. It’ll be interesting to see where the annual farmland value increase ends up for 2022, especially given how strong agricultural incomes look to be for the year. So, I’m keeping an eye on USDA’s estimates of net farm income, as well as trends for farm exports given their importance for prices of agricultural products.
