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Wednesday, November 16, 2011

Is Farmland Really Worth 25% More Than It Was A Year Ago?


Anecdotal reports of high priced farmland sales have rippled through Cornbelt coffee shops, title companies, and bank boardrooms.  And the trend has certainly outpaced corn yields and grain prices.  But data that is more reliable than word of mouth has verified what the rumors have been and it may even show a stronger trend than had been anticipated.

As the growing season draws to a close in most areas of the Cornbelt, some farms will change hands, both in ownership and in operators.  Historical statistics indicate only 1% of farmland will be sold in a given year.  However, the season has arrived for farm sales as well as changing operators and re-negotiating leases.

Economists in the Federal Reserve District banks frequently survey commercial lenders for information on agricultural credit conditions and land values in their marketing areas.

In the Seventh Federal Reserve District at Chicago, economist David Oppedahl reports a district-wide 25% increase in land values compared to the third quarter of 2010.  That was a 7% increase from the second quarter of this year, with values rising steadily in all states.  For the past 12 months, Iowa recorded a 31% increase in the value of good farmland.  The district includes the northern two-thirds of Indiana, where there was a 29% increase, and the northern two-thirds of Illinois where there was a 23% increase.  The district also includes the state of Michigan where there was a 16% increase, and the southeastern two-thirds of Wisconsin which had a 17% increase in land values.

Oppedahl says 39% of the bankers he surveyed believe land values will move higher, and only 2% believed they would move lower, and that is parallel with his second quarter survey.  The bankers told the Chicago Fed survey that more farmland would change hands this fall and winter than would be normally expected.

In the Tenth Federal Reserve District at Omaha, economist Jason Henderson also reported a 25% surge in land values over the past year, and a quarter of the bankers he asked said prices have not peaked.  For non-irrigated farmland, Nebraska recorded a 38% rise in land values.  Kansas reported a 20% increase, 13% in Missouri, and nearly 11% in Oklahoma.

Henderson said there have been a limited number of farms for sale during the growing season, and those that did sell saw strong competition at auctions.  He said the most common method of payment was a 20% cash down payment, with buyers pledging 30% of the price from their current equity, and financing the other 50% with new debt.

In the Ninth Federal Reserve District at Minneapolis, economist Joe Mahon reports cash rents and farmland values “continued to soar,” during the April through June period, which was the last one for which he has a report.  He said the biggest gains were for non-irrigated land with land values rising 22% across the district, which includes Montana, the Dakotas Minnesota and the upper portions of Wisconsin and Michigan.  Mahon said the land value increases were topped by 25% in Minnesota.

Although there are some minor aberrations, the trend for land prices throughout the Western and Central Cornbelt and the Great Plains is currently a 25% increase over the same period a year ago.  That data comes from local bankers, surveyed by Federal Reserve staff, with expectations for the trend to continue, rather than top out or fall.

Posted by Stu Ellis on 11/16 at 02:12 AM | Permalink

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