Slower growth in Midwest farmland values

CHICAGO — Farmland values in the Seventh Federal Reserve District averaged a 4% increase from a year ago, the smallest year-over-year gain in three and a half years.

The latest farmland value tracking was reported in the Federal Reserve Bank of Chicago’s May agricultural newsletter.

In addition, “good” farmland values in the district rose 2% from the fourth quarter of 2023 to the first quarter of 2024, according to the survey responses of 141 district agricultural bankers.

Wisconsin’s farmland values pulled up the district average year over year with a 10% increase since April 1, 2023. Illinois had a 5% increase on average within the district.

There was no increase in Iowa, and Indiana and Michigan had insufficient responses to the survey.

Illinois and Iowa farmland prices increased 1% on average from Jan. 1 to April 1 this year, Wisconsin’s went up 3%, Indiana prices were unchanged in the first quarter, and Michigan had insufficient responses.

The Seventh District includes the northern two-thirds of Illinois and Indiana, all of Iowa, the southern two-thirds of Wisconsin and Michigan’s Lower Peninsula.

“For the three- to six-month period ending with March 2024, relative to the same period ending with March 2023, 19% of the survey respondents reported higher demand to purchase farmland and 26% reported lower demand,” said David Oppedahl, Seventh District policy adviser and AgLetter author.

“Despite this ebbing demand for agricultural ground, a Wisconsin banker reported that ‘farmland prices continue to rise slightly, mostly due to lack of land for sale.’”

“Indeed, there was a smaller amount of land for sale during the most recent winter and early spring compared with a year ago,” he said, noting 14% of the responding bankers reported more farmland was up for sale in their areas and 42% reported less.

“Likewise, the number of farms and the amount of acreage sold were also down in the winter and early spring of 2024 relative to a year earlier.”

According to survey participants, the share of acres purchased by farmers in the three- to six-month period ending with March 2024 was down relative to that in the corresponding period ending with March 2023, implying that the share of acres purchased by investors was edging up in parts of the district.

Cash Rents

Annual cash rental rates for Seventh District farmland saw an increase of 2% in 2024 — much slower growth than that of the previous three years.

A sizable majority of responding bankers, 76%, forecasted district farmland values to be stable during the second quarter of 2024, while 7% forecasted them to be higher and 17% forecasted them to be lower.

For 2024, average annual cash rents for farmland were unchanged in Illinois and were up 4% in Indiana, 1% in Iowa and 6% in Wisconsin. Not enough survey responses were received from bankers in Michigan to report a numerical change for that state.

However, after being adjusted for inflation with the Personal Consumption Expenditures Price Index, district cash rental rates were actually down 1% in 2024 from the previous year. This small annual decrease in real cash rents followed three consecutive annual increases.

Lagging cash rental rates could be emblematic of declining prices for farm products, which have spurred concerns about a fall in farm earnings from 2023′s above-average levels.

According to data from the U.S. Department of Agriculture, prices received by farmers in March 2024 were down 5% from a year ago and prices for crops that month were down 16% from a year earlier.

In contrast, prices for livestock and associated products in March 2024 were up 5% from a year ago. But, notably, while cattle and hog prices did move higher relative to a year ago, dairy and egg prices floundered.

An Illinois banker noted that “high interest rates and low commodity prices are taking away interested parties,” leading to fewer bidders at farm auctions.

Looking Ahead

According to an Iowa banker, “projections for 2024 show most farmers breaking even or going backwards in equity and working capital.”

This view seemed widespread in the district, as survey respondents forecasted that the overall volume of farm non-real-estate loans would rise in the during the April through June period of 2024 relative to the same period of 2023.

Forty percent of the responding bankers expected a higher loan volume, while 10% expected a lower volume.

“In particular, operating, feeder cattle and Farm Service Agency-guaranteed loans were anticipated to have higher volumes relative to a year earlier. In contrast, surveyed bankers forecasted a decline in the district’s farm real estate loan volume in the second quarter of 2024 from a year earlier,” Oppedahl said.

Another Iowa banker stated that “with the lower grain prices, we can sense a little caution with spending on land and machinery.”

In the first quarter of 2024, 59% of survey respondents considered farmland to be overvalued, while just 1% considered it undervalued.

Even so, responding bankers generally expected farmland values to be unchanged in the second quarter of 2024 — 7% of these bankers forecasted agricultural land values to increase, 76% forecasted them to be stable and 17% forecasted them to decrease.

“So, once again, the consensus among survey participants was for district farmland values to be steady in the next quarter,” Oppedahl said.