At 25%, the year-over-year gain in agricultural land values in the third quarter of 2011 for the Seventh Federal Reserve District was the largest in just over three decades.
Iowa values topped all Chicago Fed states, up 31% from Oct. 1, 2010 to Oct. 1, 2011. Indiana values rose 29%; Illinois, up 23%; Wisconsin, up 17%, and Michigan values rose 16%. Moreover, at 7%, the quarterly increase in good farmland matched the highest level since the late 1970s, according to a survey of 216 bankers.
Since district values hit bottom in 1986, the compound annual growths rate for farmland values has been 5% (adjusted for inflation), according to the Chicago Fed’s November Ag Letter.
Given that 39% of survey respondents anticipated higher farmland values from October to December 2011 and only 2% anticipated lower values, expectations overall favored continued increases in farmland values.
Demand to acquire farmland this fall and winter looked to remain strong, with demand especially strong among farmers. About 60% of respondents forecasted higher demand for land among farmers over the next three to six months. In addition, 41% expected greater demand to purchase farmland among nonfarm investors. Unsurprisingly, high farmland values have stoked expectations of more acres up for sale in the next three to six months.
Survey respondents anticipated increased net cash earnings for farm operations during the fall and winter relative to the same period a year earlier. A slide in corn and soybean prices this fall had not extinguished optimism regarding farm incomes, as evidenced by 74% of responding bankers expecting higher net cash earnings for crops over the next three to six months. October corn and soybean prices remained 37% and 17% above the levels of a year ago, respectively.
Hog, cattle and dairy farmers were expected to see enhanced earnings this fall and winter as well. Prices for hogs, cattle and milk were 29%, 22% and 7.6% higher this October than the same month last year, respectively. Moreover, feed costs had declined, boosting net incomes from livestock.
Agricultural credit conditions continued to improve across the district in the third quarter. Notably, interest rates on farm loans trended below the previous quarter’s record lows.
As of Oct. 1, the district average for interest rates on agricultural real estate loans was 5.36%. Rates for operating loans fell to 5.66%, on average, for the district. Iowa had the lowest rate for farm mortgages, 5.24%, while Indiana had the lowest rate for operating loans, 5.44%.