LINCOLN, Neb. (DTN) -- Although the Chicago Federal Reserve Bank expects to see agricultural credit conditions deteriorate through 2026 in the bank's seventh district, which includes all of Iowa and parts of Wisconsin, Illinois, Indiana and Michigan, stronger farmland values, government support programs and lower interest rates may provide some hope.

The bank's February 2026 ag letter presents the results of a survey of 102 ag bankers in the region and said agriculture land values in the seventh district increased 6% annually in 2025, which is a reverse of what was a modest decline in 2024. Land values in the district increased by 2% in the fourth quarter of 2025 compared to the third quarter.

Ag bankers reported Illinois, Indiana and Iowa all experienced single-digit increases in land values after declines in 2024.

In addition, the ag letter said agriculture interest rates edged down from the third quarter to the fourth quarter of last year, reaching their lowest levels since the third quarter in 2022.

However, the bankers surveyed reported the share of farm loans with "major" or "severe" repayment problems reached 5.6% in the fourth quarter of 2025 -- the highest percentage since the second quarter of 2020.

In addition, loan repayment rates were lower compared to one year ago and loan renewals and extensions increased, which is an indication of financial stress.

Thirty percent of banks in the seventh district reported tightening credit standards for farm loans, according to the ag letter.

A higher percentage of bankers (20%) in the region said they expect to see land values decline in the first quarter of this year, compared to 7% saying at the same time last year they expected to see those values rise.

The survey results indicate ag bankers expect to see capital expenditure decrease across all categories. Survey respondents said at the beginning of 2026, 3.8% of their farm customers with operating credit in past year "were not likely to qualify for new operating credit" in the upcoming year.

"This survey result, combined with the rise in loans with repayment problems and somewhat tighter credit standards, suggests district agricultural credit conditions may deteriorate further in the year ahead," according to the ag letter.

"As a banker from Illinois commented, '2026 is going to be a challenge for many producers with higher input prices.' Yet, the outlook still offers some hope for Midwest farmers, particularly given stronger farmland values, government support of farm operations, and lower recent agricultural interest rates."

Highlighting the challenges in the farm economy, the American Farm Bureau Federation also released an analysis this week showing Chapter 12 bankruptcies increased for the second year in a row, reaching 315 filings in 2025, a 46% increase from 2024. The analysis showed the Midwest and Southeast made up more than two-thirds of the Chapter 12 filings, which was significantly higher than other regions of the country.

For more on AFBF's analysis, go to: https://www.fb.org/….

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

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