LINCOLN, Neb. (DTN) -- Midwest farmland values are holding steady in name only. When adjusted for inflation, values in the Federal Reserve's Seventh District fell 3.7% year over year in the second quarter of 2026 -- the steepest real decline in a decade -- even as demand from data centers and solar farms helped prop up prices.

WHAT THE NUMBERS SHOW

Overall, Midwest farmland values were flat in the second quarter of 2026 compared to one year ago, according to a report from the Federal Reserve Bank of Chicago, marking the slowest year-over-year growth since the fourth quarter of 2024. But when adjusted for inflation in the Seventh Federal Reserve District, which includes Illinois, Iowa, Indiana, Wisconsin and Michigan, the situation is even worse.

"In real terms (after being adjusted for inflation with the Personal Consumption Expenditures Price Index, or PCEPI), there was a year-over-year decrease of 3.7% in district agricultural land values," the Fed said in its latest AgLetter. "This was the largest year-over-year decline in real farmland values for the district since the third quarter of 2016."

A survey of Midwest lenders showed little optimism about land values rebounding in the third quarter.

"Only 5% of the responding lenders anticipated farmland values to rise in the third quarter of 2026, while 81% anticipated them to be stable and 14% anticipated them to fall," according to the report.

Not all states in the Seventh District fared the same in the survey.

For example, Illinois and Iowa experienced year-over-year increases in farmland values, while values fell in Indiana and Wisconsin, according to the report.

DATA CENTERS AND SOLAR: A NEW FLOOR FOR LAND VALUES?

What's more, the lenders responding to the survey said they were noticing an emerging factor propping up land values.

"Several lenders commented that investment activity for data centers and solar and wind farms helped hold up agricultural land values," according to the report.

One Wisconsin lender surveyed responded: "At some point, farmland values should plateau as outside pressure from solar and data centers subsides."

The survey also found that 43% of bankers believe agricultural land is overvalued, while 57% viewed it as appropriately valued.

CREDIT CONDITIONS CONTINUE TO WORSEN

As has been the case in other recent Fed reports on ag land, the latest survey showed agricultural credit health continues to worsen.

Farm loans with "major" or "severe" repayment problems grew by 3.7% in 2026 -- an increase from 2.9% the previous year and the highest since 2020.

The report said loans reporting no repayment problems fell from 90.1% to 88.5% year over year.

The analysis quoted an unnamed Iowa lender: "Commodity price volatility and elevated production expenses are the factors weighing most heavily on credit conditions."

In addition, the Seventh District's average loan-to-deposit ratio increased to 80.7% in the second quarter of 2026 -- the highest number since collection of data began in the 1970s.

"Over the first half of 2026, district banks made more farm operating loans and farm mortgages than normal, according to responding lenders," the report said.

"Over the same time period, lenders reported that Farm Credit System institutions, as well as merchants, dealers and other input suppliers, lent more funds to the agricultural sector than normal, while life insurance companies lent less."

WHAT LENDERS ARE WATCHING

The survey also found the amount of collateral required by lenders in the states was higher than one year ago.

The survey showed that nominal interest rates increased while real rates continued to decline.

"Average nominal interest rates on farm operating (7.12%), feeder cattle (7.14%), and farm real estate loans (6.79%) were up a little during the second quarter of 2026 from the first quarter," the report said.

"In real terms (after being adjusted for inflation with the PCEPI), the average interest rates on operating loans, loans for feeder cattle and loans for farm real estate were down from the first quarter of 2026 (the fourth consecutive quarter with declines for all three)."

Todd Neeley can be reached at todd.neeley@dtn.com

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