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7 Reasons Farmland Values Are High

09:50AM Jun 04, 2012

Land values are up and don’t seem to be coming down any time soon.


Values of Midwestern farmland make a pretty consistent upswing, when depicted on a graph. From 1950 to last year, values for U.S. farm real estate (which includes all land, buildings and dwellings on farms), is almost a perfect arc up, with only a few small declines.

US Farmland Values 
Looking ahead, the upswing continues. According to the Federal Reserve Bank of Kansas City’s most-recent quarterly Survey of Agricultural Credit Conditions, strong farm incomes continued to fuel demand for Tenth District farmland.
The value of nonirrigated cropland in the seven-state District rose more than 25% above year-ago levels in the first quarter of 2012, while the value of irrigated acreage vaulted more than 30% higher than a year ago.
These large increases come on top of the more than 20% gain posted in 2011. This is the first time in the history of the survey that the annual value of District cropland rose more than 20% for two consecutive years.
Ron Plain, agricultural economics professor at the University of Missouri, and William Edwards, Iowa State University professor, recently spoke at a farmland conference held at the University of Missouri – Columbia.
They credit the following reasons for increases in farmland values.
  1. Inflation: Plain says, like prices for other commodities, farmland values typically increase over time.
  2. Lack of alternative investments: Edwards says, in Iowa, agriculture is king and land is a sought-after commodity. What else would farmers with large incomes invest in?
  3. Limited supply: Only so much land in the U.S. is suitable for agriculture. "There just not making any more of it," Plain says.
  4. High corn and soybean prices: Edwards says demand for biofuels, livestock feed and exports have all help push prices up, which has increased the overall income of farmers.
  5. Low Interest rates: During the last few years, farmers have been able to easily obtain low-interest loans to purchase farmland.
  6. Favorable crop yields: Average corn yields, for example, have showed a strong increase over the last 100 years, Plain says, which has simultaneously increased average corn profit per acre.
    average corn yield

    average corn gross
  7. High degree of liquidity, equity capital: Edwards says because of high farm incomes, farmers have been able to purchase land without borrowing as much.