Power Hour: Heartland Land Values Continue to Surge

November 2, 2012 09:31 AM
Power Hour: Heartland Land Values Continue to Surge

The drought is not dampening farmland values in the Heartland as bankers in the Corn Belt and Northern Plains reported strong year-over-year value gains in the second quarter.

Power Hour webIn Nebraska and South Dakota, non-irrigated cropland values remained more than 30% above year-ago levels, and robust energy production in North Dakota drove levels up 28%.

Year-over-year Iowa values rose 24%, 15% in northern Illinois, and overall in the Eastern Corn Belt, values rose between 10% and 15%. In contrast, a consecutive year of drought in Texas led to values rising just 2.5%.

Agricultural bankers in the Kansas City, Dallas and San Francisco Federal Reserve Districts reported stronger gains in irrigated farmland as dry conditions persisted. Many agricultural bankers expected farmland values to hold at current levels through harvest, when more farms would be put up for auction.

Farm loan delinquency rates declined further and banks expected loan repayment rates to remain solid as high crop prices compensate for lower yields and crop insurance payments support farm income. Effective interest rates inched lower as more loans were made with floating interest rates. Agricultural banks reported stronger profits as the average return on assets at agricultural banks rose to a four-year high.

During the third quarter, short-term lending on operating loans surged as feed and fuel costs soared. According to national farm loan survey data through the first week of August, the volume of short-term operating loans jumped 36% compared to last year, a new survey high. Rising input costs spurred lending to both the livestock and crop sectors as feed costs soared and rising fuel prices increased irrigation and harvest costs.

Agricultural bankers reported making more operating loan amounts compared to a year ago, boosting total volumes. In addition, the volume of intermediate-term loans for farm machinery and equipment remained above year-ago levels with solid farm incomes.

Drought conditions also spurred short-term lending for feeder livestock. According to loan survey data, the volume of feeder livestock loans reached a two-year high and exceeded 2011 levels by 60%, more than offsetting a drop in other types of livestock loans. 

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