Marc Schober is the editor of Farmland Forecast an educational blog devoted to investments in agriculture and farmland.
Farmland Values Rose Double Digits in 2010
Feb 18, 2011
Record grain prices and farmer income drove farmland prices to double digit gains in the last twelve months, according to the Federal Reserve Bank of Kansas City. The farmland market displayed the strongest year-over-year gains since 2007-08, as high farm income attracted farmer and investors to the market.
The Fed expects the momentum to continue into 2011 with farmland values and farmer income to rise in the coming months, although land values may not continue their rapid pace. Kansas and Nebraska had the strongest gains in 2010, with non-irrigated farmland appreciating 19.5% and 17.6% respectively. Ranchland also benefited across the district, with an average gain of 9.2%.
Brian Briggeman, Kansas City Fed economist, commented, “Rising farm income, especially for crop producers, drove nearly 20% annual value gains for Kansas and Nebraska farmland. In Oklahoma and the Mountain states, annual farmland value gains were not as sharp due to extremely dry conditions threatening crop yields and limiting cattle grazing.”
The Fed did note a concern as cash rental rates only rose 6.0% over the last twelve months. Briggeman noted, “With farmland value gains outpacing the increase in cash rents, some District bankers were concerned that land values may not maintain their torrent pace.”
Farmland was primarily purchased by farmers looking to reinvest their profits, but 2011 saw a larger number of nonfarm investors looking to capitalize on rising values and cash rents. The amount of sales in 2010 was higher than the previous year, but land buyers did not have a problem consuming the high volume.
Farm credit conditions continued to improve in 2011 with farmers paying down debt and pushing the loan repayment index to its highest level in three years. Strong farm income led to fewer requests from farmers for new loans and extensions.
2010 was one of the most exciting years for agriculture in recent memory, which is reflected in the higher farmland values and farm income. The Fed did note that cash rents are not keeping pace with farmland values, but there is typically a lag and this should adjust over the next 12 months.
Supplies will continue to remain tight over the next few months and we expect farmers and investors to continue to capitalize on the momentum.
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