While that is an 11 percent increase from quarter to quarter, it compares to a 20.6 percent increase when the second quarter of 2013 is compared to the second quarter of 2012. Fed economists in St. Louis, who surveyed commercial bankers for the land value data, also reported expectations for trends to continue.
“A proportionately larger number of respondents expect quality farmland and ranch or pastureland land values to increase in the third quarter relative to a year earlier.” The economists also noted that farm rental relationships may be moving toward more of a risk sharing arrangement due to economic uncertainties. They wrote, “Respondents expect quality farmland and ranch or pastureland cash rents to increase during the third quarter from a year earlier. However, anecdotal information collected from other sources suggests some shift in cash rents toward a variable or profit-sharing basis.”
The Kansas City Federal Reserve District’s latest report reflects higher land values, but underlying caution about what is around the corner. For irrigated cropland in the region that includes KS, NE, MO, and OK, prices were 25 percent higher than they were a year ago. At the same time non-irrigated cropland rose 18 percent in value, except in drought-weary regions were values were only 14 percent higher.
The gains come even as farm income in many states is declining, in part due to reduced revenues for grain and losses in the beef market. The commercial bankers surveyed by the Kansas City Fed economists reported that values for land were higher due to the low interest rates and lack of debt within the agricultural community, but the levels for land values may have reached a peak.
Most of the bankers told the Kansas City Fed that farmland values would remain where they are, and more of the survey respondents believed they have peaked. The bankers who believe land values will continue to rise are fewer in each of the surveys taken recently by the bank’s economists. For those expecting a decline, that decline is less than 10 percent.
While land values are higher this year than last year, parts of the Corn Belt are seeing a more leveling of land values. There has been no widespread decline, and commercial bankers working with agriculture are not forecasting a decline. But surveys of those individuals are indicating a peak in land values is either occurring or may be occurring soon. The lower market for grain will have a significant impact on prices that are paid for farmland.
Source: FarmGate blog