Farmland Values Increase 25% in Second Consecutive Year
May 22, 2012
Farmland values increased by over 20% for the second straight year in the Tenth District of the Federal Reserve Bank of Kansas City. Easing drought conditions in the Tenth District and crop prices that increased in the fourth quarter of 2011 lead to increased farmer income which was in turn reinvested in farmland thus driving demand for farmland and prices higher.
Non-irrigated cropland increased by 8.0% in value throughout the first quarter of 2012 and irrigated cropland values increased 9.0% due to strong farmer demand driven by increased farmer income. Bankers in the Tenth District reported a decrease in loan volumes and interest rates while capital available to lend has been ample.
Farmland values posted the second consecutive 25% increase year-over-year in the Tenth District that includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico, and the western third of Missouri. The value of non-irrigated and irrigated cropland in the District climbed 8.0% and 9.0%, respectively, compared to fourth quarter gains of 2011. Year-over-year, non-irrigated cropland values have surged 24.7% and irrigated cropland values have increase 31.8%, the largest single year increase in the history of the 32-year old survey.
District ranchland values increased by over 7.0% in the first quarter of 2012 marking a year-over-year increase of 15.6%. One-third of bankers surveyed forecast farmland values to rise in the upcoming months while the balance of bankers feel that values will hold steady.
Nebraska lead all states in the increase of farmland values with non-irrigated farmland increasing by 38.6% compared to the first quarter of 2011. Irrigated farmland in Nebraska soared by 41.4% throughout the same time frame according to the survey. The drought of 2011 has continued to fuel irrigated farmland values as farmer demand for irrigated land continued to remain very strong.
Increased farmer income lead to strong farmer demand to purchase farmland in the first quarter of 2012. The easing drought conditions paired with rebounding crop prices at the end of 2011 generated elevated income for farmers. Often the next step farmers took was to expand operations through land acquisitions. An excellent winter wheat crop condition should continue to support elevated farmer income and farmland values.
Farm Loan Portfolio
The index of farm loan demand decreased to the lowest level since the late 1980s due to increased cash spending by farmers. In early 2011, bankers reported that of new real estate purchases, slightly over 50% were comprised of debt, but now it stands at 47%. 40% of bankers surveyed said that more funds are now available for lending compared to one year ago with the amount of collateral and interest rates both decreasing as well. The loan repayment index also increased to a new record high surpassing the previous high of 2008, a sign of strong farmer financial stability.
"Farmers are cash rich and very liquid. Demand for loans is down," noted one banker in South Central Nebraska. The 2012 first quarter interest rates averaged 6.2% for farm operating loans, and fell to 5.8% on farm real estate loans thus promoting lending opportunities.
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