Land values for the Kansas City Federal Reserve District are sizzling, reaching all-time highs across many states. Non-irrigated land is up 25%, comparing the last quarter 2011 with the same quarter a year earlier.
Values jumped 9% in the last quarter of 2011 alone. There are stark differences among states in the district, however, and between non-irrigated land, irrigated land and ranchland, a survey of district bankers shows.
Despite more farmland for sale, strong farmer demand pushed prices higher, the survey discovered. In fact, the share of farmland bought by farmers grew from about 60% in 2005 to around 73% in 2011.
Regarding non-farmer purchases, more bankers reported farmland buying for investment purposes, such as receiving rental income and earning capital gains. Though not as steep as cropland value gains, annual cash rent rate increases averaged a hefty 18% in the district, far outpacing the average gain of 6% reported in December 2010.
The land value boom is particularly strong in Nebraska, with non-irrigated land up 37.8%, by far the leader in the district. The state’s irrigated land values were nearly as strong, 36.1% higher year-over-year, with ranchland up 21.2%.
In Kansas, non-irrigated values rose 24.1%, irrigated, up 18%, and ranchland values up 13.7%; Missouri (the western third of the state) non-irrigated values rose 18.5% and ranchland was up 11% (the responses on irrigated land were not calculated due to a small sample).
However, in Oklahoma, the severe drought heavily curbed increases on non-irrigated values. In that state, year-over-year non-irrigated values rose only 9.2% due to the severe drought, while irrigated land values more than doubled that, up 22.6%, with ranchland increasing a modest 6.9%. In the Mountain States (Colorado, Wyoming and the northern half of New Mexico), non-irrigated values rose 14.2%, irrigated values were up 9.8%, while ranchland increased 14.7%.
While farm income was strong overall, crop losses due to drought clipped farm income in Kansas and Oklahoma, the bankers reported. Crop losses due to both to flooding and drought meant that some producers in the district had to rely on crop insurance to supplement farm income at the end of the year. However, with solid farm income expectations for 2012, a third of respondents felt that farmland values would rise further in 2012.
"Land sales have exploded," says a northeast Nebraska banker. "Many farmers have also prepaid for nearly all of (2012) crop inputs," he says. However, "land prices and cash rents are highly dependent on irrigation capacity," adds a western Oklahoma banker.
"Ag producers did very well in 2011, but profit margins are expected to decrease in 2012 with higher input costs," says a southeast Wyoming banker. In western Kansas, harvest in 2011 was marginal due to drought. "Crop insurance and oil lease money are helping keep farmers afloat," an area banker says.
Credit conditions improved in the fourth quarter with stronger farm incomes overall in the states that make up the Kansas City Fed. The farm loan repayment index rose as farmers paid down debt at year-end. In addition, bankers reported fewer loan extensions or renewals. Farm loan demand picked up slightly in the fourth quarter with a year-end push to buy equipment and put capital improvements in place. Bankers also noted increased use of vendor financing for farm machinery and equipment purchases.
In the fourth quarter, interest rates averaged 6.3% on farm operating loans, and the average interest rate on farm real estate loans fell below 6% for the first time in survey history, dipping to 5.9%.
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