Sizzling hot farmland values spike again. In the states making up the Seventh Federal Reserve District, values reached skyward, jumping 22% in 2011, led by Iowa’s 28% ramp-up. Close behind was Indiana’s 27% increase, a 21% hike in Illinois, and an 18% increase in Wisconsin, according to a survey of bankers for the Fed’s latest AgLetter.
Districtwide, values showed the highest annual increase since 1976 on a percentage basis. Increases for "good quality" farmland cooled a bit in the fourth quarter from the blistering pace of the third quarter, but 40% of bankers surveyed expected additional gains in January–March of 2012.
Just like the annual index of nominal farmland values, the index of inflation-adjusted farmland values set a record for the district. The compound annual growth rate for agricultural land values (adjusted for inflation) has been 5.5% since land values hit bottom in 1986. Going back further, the real compound annual growth rate for district land values has been 2.9% since 1970, encompassing the boom of the 1970s followed by the bust of the 1980s.
"The year 2011 may go down in the annals of U.S. agriculture as a once-in-a-generation phenomenon," the Fed says. Undergirding farmland values was an unusual shift in agricultural prices across the board. Not only did major crop prices move higher, but key livestock and dairy prices were higher as well. Corn, soybean and wheat prices averaged 57%, 26% and 45% higher, respectively, in 2011 than in 2010. Milk, hog and beef cattle prices rose more than 20% each, although producers faced costlier feed bills.
Interest rates as of Jan. 1, 2012, averaged 5.47% for farm operating loans. Interest rates on farm real estate loans dropped for the fifth straight year, averaging 5.20%. Producers are finding it slightly harder to qualify for farm loans than a year ago. Moreover, 24% of the banks tightened credit standards for farm loans in the fourth quarter of 2011 relative to the same quarter a year earlier.
Even so, bankers thought that less than 1% of their farm customers with operating credit in 2011 would not qualify for new operating credit in 2012. Farmers’ capital expenditures in 2012 are anticipated by respondents to rise above those of 2011.