Farmland prices are still rising, but the rate of advance has slowed, making one wonder if the top of the market will soon be seen. Within the Chicago Federal Reserve District, which comprises Iowa, and parts of Illinois, Wisconsin, Indiana and Michigan, land prices climbed 5% in the first three months of the year, compared to the same period in 2011. That compares to 19% for the prior 12 months as reported by commercial bankers in the region. Farmland prices are still hot.
The Chicago Fed survey of 231 bankers in the district reported the first quarter of the year saw 8% increases in land values in the southeastern two-thirds of Wisconsin and the northern two-thirds of Illinois. Prices rose by 4% in Iowa, 5% in Michigan, and 3% in Indiana. For Iowa, that compares to the 27% rise in land prices for the period from April 1, 2011 to April 1, 2012. But the 5% quarterly gain was in line with the prior 18 months.
Ag economist David Oppedahl of the Chicago Fed District asked the commercial lenders about the general nature of recent farmland auctions and discovered:
- There were some auctions where the reserve price was not met.
- Farmers were primary purchasers of land in the past 3 to 6 months.
- 3) Investors are still searching for bargains in land purchases.
- 4) 74% of the bankers reported a higher demand for farmland than year earlier levels.
- 5) Only 1% of bankers reported a lower demand for farmland.
- 6) 46% of the bankers reported an increase in the amount of farmland for sale.
- 7) Only 13% reported less farmland being available to the market.
Along with the 19% increase in land values compared to year earlier levels, was a 17% increase in cash rent compared to 2011. Cash rent increases were reported 20% higher in Iowa, 15% higher in Illinois and Indiana, 19% in Wisconsin, and 12% higher in Michigan. The year over year increase was the second highest recorded, only behind the increase seen in 1981.
The demand for more land, either through purchases or rent, appears to be driven still by higher commodity prices and greater net farm income, say the Chicago Fed and its survey respondents. However, Oppedahl reports lower commodity prices have reduced the upward pressure in 2012, as a result of lower prices for corn, hogs, and dairy products. Lower revenue, from lower commodity prices and higher input costs, would tend to create profitability challenges for farmers in the coming year, unlike 2011.
In the year ahead, Oppedahl, says, “The trend toward higher farmland values could ease in the second quarter of 2012, according to survey respondents. A third of the responding bankers expected farmland values to increase during the April through June period, while 1% expected declines. Nearly two-thirds of the respondents looked for farmland values to stabilize.