Farmland values in the Corn Belt are rising as fast as anytime in the past 35 years, but may be showing some indication of deceleration. Bankers throughout the five-state region in the Chicago Federal Reserve District report a 22% increase in the value of good farmland over the course of 2011. But in the seven-state Kansas City Fed District, the value of farmland rose 25% in the past year.
Farmland is in demand, and it is not for housing development purposes.
In the mid-1970’s farmland values across Iowa, Illinois and other states bordering Lake Michigan recorded annual increases of more than 20% per year, with 1976 climbing nearly 30%. Not since those years have land values in corn country jumped as much as they did this year.
Chicago Fed agricultural economist David Oppedahl says land prices reported in Iowa and Indiana outpaced the rest of the District. For 2011, Iowa recorded a 28% increase, Indiana was 27%, Illinois was at 21% and Wisconsin at 18%. There were insufficient land sales in Michigan to make an estimate.
However, the fourth quarter of 2011 saw a distinctive slowdown with all states with single digit increases and a 4% increase for the Chicago Fed District. But he says the bankers he surveyed do not believe that land prices have topped, “This kind of momentum may carry the current upward trend in farmland values into 2012. With 43% of the responding bankers expecting agricultural land values to increase from January through March of 2012 and only 2% expecting a decrease, the survey responses provided support for the notion that farmland values will continue to rise in early 2012.”
There was no surprise what Oppedahl says was fueling the higher land prices. He cited USDA’s reports on higher farm income in 2011 and expectations for 2012.
He said in the Chicago Fed District and across the Corn Belt, corn and soybean operations were key drivers of profitability. But he says along with the profitability is volatility that warrants caution by agricultural decision-makers, “During the past two years, average corn prices ranged between $3.41 per bushel in June 2010 and $6.88 per bushel in August 2011.
Similarly, monthly soybean prices averaged $9.39 per bushel in March 2010 and peaked at $13.40 per bushel in August 2011. These wide swings in prices make risk-management strategies even more vital for agricultural enterprises, whether or not there is a higher level for agricultural prices in the era ahead.”
In the Kansas City Federal Reserve District economist Jason Henderson said the more than 250 bankers he surveyed reported that “robust bidding” by farmers spurred the record sales he saw, but that just enticed land owners to put more land up for auction than what might have been seen.
Henderson reported that farmers bought 73% of the land sold in the Kansas City district. Nebraska saw the greatest increase at 38% for non-irrigated land and 36% higher for irrigated land. His district includes Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri.
Land values are uniformly rising throughout the Corn Belt and the Great Plains, thanks to farmers being the primary buyers and to the value of commodities. Higher prices for grain have spurred the most significant demand for land since the 1970’s. However, the higher bids come with warnings about the need for risk management.