Corn Belt Farmland Values Continue to Rise
May 21, 2012
Farmland values rose 19% over the last twelve months as farmers continued to purchase land to capitalize on high grain prices, according the Federal Reserve Bank of Chicago. The value of "good" farmland increased 5% in the first quarter of 2012 compared to the fourth quarter of 2011. All District states posted year-over-year increases in farmland values and the largest year-over-year land value increases came from some of the largest producers of corn and soybeans in Illinois and Iowa at 20% and 27% respectively.
The outlook for farmland values in the second quarter of 2012 is that of stability. Almost two-thirds of bankers surveyed estimated farmland values will remain stable in the second quarter of 2012, but one third expect values will continue to rise.
Farmers continue to be the support behind auction sales, driving up sales bids. Although investors were looking to purchase farmland, farmers purchased a higher share of acres sold in the past three months due to increased farmer income over the last year. Demand to purchase farmland was on the rise as 74% of bankers reported higher demand to purchase farmland.
Along with farmland value increases, cash rental rates are following the same trend. Cash rental rates in 2012 increased 17% from 2011, the second largest increase in the history of the survey. This is to no surprise as cash rental rates go side by side with farmland values, although rental rates typically lag behind land value increases due to terms of contract length.
According to the USDA's most recent forecasts, average corn prices for the 2012-13 crop year are estimated at $4.20-$5.00, a significant decrease from 2011. The lowered price range is attributed to an anticipated record fall harvest, of 166 bushels per acre.
Input costs from the first quarter of 2011 to the first quarter of 2012 rose 6.6% according to the USDA index of prices paid by farmers.
Farmers will find it difficult to reach the record high incomes of 2011, due to a decrease in corn prices, compared to last year, and input costs on the rise.
The agricultural credit condition continues to improve across the 7th district from 2011 to 2012, due to strong farmer balance sheets. Of the total respondents, 56% reported higher rates of loan repayment compared to last year and the index of non-real-estate agricultural loan repayment rates reached its highest level in the surveys history.
The index of funds available in the first quarter of 2012 hit an all time high as 64% of bankers had more funds available. Farmers seem to be funding their operations more heavily with cash earned rather than bank credit.
Demand for non-real-estate loans continued to decline and reached its lowest level since 1987. Only 19% of respondents reported higher demand for non-real-estate loans over last quarter, and 47% reported a decrease in demand.
Interest rates for agricultural loans continued to declined in the first quarter of 2012 as well. Farm operating loan's average interest rate was 5.34% and real estate loans fell to 5.08% resulting in the lowest level for both interest rates in the surveys history.
2nd Quarter Outlook
The trend of increasing farmland values could ease in the second quarter of 2012, according to bankers surveyed. A decrease in the volume of non-real-estate loans is expected in the second quarter of 2012 compared to the second quarter of 2011. According to bankers growth is expected in farm machinery, grain storage construction, and real estate loan volume in the second quarter of 2012 compared to the second quarter in 2011.
The Federal Reserve Bank of Chicago’s first quarter survey of Farmland Values and Agricultural Credit Conditions Report is a summary of the 7th District’s value of farmland, farm loan portfolio performance, and on-farm income. The 7th District consists of the entire state of Iowa, and portions of Illinois, Indiana, Wisconsin, and Michigan.
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