Farmland values continue to rise: Fed survey

CHICAGO — Farmland values had the largest year-over-year increase in over nine years, according to a 7th Federal Reserve District survey.

Assisted by low interest rates, government support and higher than normal farm incomes, the Chicago-based district saw a year-over-year gain of 18% in its agricultural land values in the third quarter of 2021.

This was the largest year-over-year increase in the district’s farmland values in 9 1/2 years, David Oppedahl reported in the AgLetter.

“After being adjusted for inflation with the Personal Consumption Expenditures Price Index, district farmland values were still up 13% in the third quarter of 2021 relative to a year ago. In nominal terms, the district’s ‘good’ agricultural land values in the third quarter of 2021 were 6% higher than in the second quarter,” Oppedahl said.

The findings are based on information from 151 bankers who responded to the district survey. The district includes basically the northern two-thirds of Illinois and Indiana, all of Iowa, the southern two-thirds of Wisconsin and Michigan’s Lower Peninsula.

Iowa led the way with a year-over-year jump in farmland values of 28% and a 10% increase from July 1 to Oct. 1. Indiana’s farmland value increased by 15% year-over-year and was up 6% in the third quarter of 2021.

The Chicago Fed survey found a 13% hike in Illinois farmland values from a year ago and a 3% increase in the third quarter. Wisconsin’s farmland values are up 10% year-over-year and 1% higher in the third quarter.

Looking Ahead

Oppedahl reported 68% of survey respondents anticipated district farmland values to rise in the final quarter of 2021 and the remainder of the respondents anticipated them to be stable.

In addition, a large majority of respondents expected both farmers and non-farm investors to have stronger rather than weaker demand to acquire farmland this fall and winter compared with a year earlier. Also, respondents overwhelmingly anticipated a rise in the volume of farmland transfers during this fall and winter relative to a year ago.

Illustrating agriculture’s much-improved situation from last year, net cash earnings — which include government payments — for crop, cattle and hog farmers were expected to be up during the fall and winter from their levels of a year earlier, according to the responding bankers.

For crop farmers, 85% of survey respondents forecasted net cash earnings to increase over the next three to six months relative to a year ago and 5% forecasted these earnings to decrease.

For cattle and hog farmers, 34% of survey respondents expected net cash earnings to increase over the next three to six months relative to a year ago and 13% expected these earnings to decrease.

However, the district’s dairy industry was not anticipated to fare as well, with 13% of responding bankers forecasting higher net cash earnings over the next three to six months relative to a year earlier and 21% forecasting lower such earnings.

Loans, Liquidations

By a wide margin, the survey respondents forecasted loan repayment rates to rise rather than drop this fall and winter from a year ago: 59% of the responding bankers predicted a higher volume of farm loan repayments over the next three to six months compared with a year earlier, while only 1% predicted a lower volume.

In addition, forced sales or liquidations of farm assets owned by financially distressed farmers were expected to decrease in the next three to six months relative to a year ago, according to 59% of the responding bankers. Only 1% expected them to increase.

“On the whole, the non-real-estate farm loan volume of the survey respondents’ banks in the October through December period of 2021 was anticipated to be somewhat lower than in the same period of 2020, whereas the volume of farm real estate loans was anticipated to be higher,” Oppedahl said.

An Iowa banker noted that 2021 had “given most farm customers their best returns to income in years,” but added that “concern will shift next year to higher input costs and high land prices.”