Land values and rents are heading lower in corn, soybean and wheat country, but no major crash appears to be in store. But many bankers surveyed for two Federal Reserve district reports say they expect further land-value erosion this year with the expected decline in 2014 crop farm income. Meanwhile, some states and regions within them are posting increases.
Values for farmland rated "good" declined 1% from Jan. 1 to April 1 in the Federal Reserve Bank of Chicago district. Year-over-year, values rose barely 1%. State numbers differed. Compared to the fourth quarter, farmland values declined 4% in Illinois and Indiana, and they fell 3% in Michigan. Values increased 1% in Iowa and Wisconsin. Year-over-year, Iowa values dropped 2%, Michigan values dropped 1%, Illinois saw no change, Wisconsin values grew 2% and Indiana values experienced an impressive 7% increase.
While values have softened, an early spring rally in corn and soybean prices drew additional interest in bidding by farmers for farmland, especially higher-quality land, the report notes. Moreover, farmers increased their share of farmland acres purchased relative to investors.
Midwest Rents Follow Land Values Lower
Even though rents lagged land values to the upside, both land values and rents have softened in 2014 in the Chicago Federal Reserve District, which includes Illinois, Indiana, Iowa, Michigan and Wisconsin. Rents declined along a spectrum, from 4% in Illinois to 1% in Michigan and Illinois. Rents and land values shown are adjusted for inflation. Source: Federal Reserve Bank of Chicago’s Ag Letter.
Data from the Federal Reserve Bank of Kansas City show a sharp divide in land values between states dependent on crops versus livestock, reversing a trend in recent years. While non-irrigated farmland dipped 1.4% in value from the fourth quarter of 2013 to the first quarter of 2014, and irrigated land rose just 0.5%, improved fortunes for livestock producers bolstered ranchland values, which increased 2.6%. Some bankers expect cropland values could experience additional easing during the next three months while ranchland values strengthen. Year-over-year data show that ranchland values rose 8.6%, almost double the increase for non-irrigated farmland.
Within the Kansas City district, Oklahoma—more dependent on livestock than many other states—posted year-over-year increases of 13.5% for non-irrigated farmland, 13% for irrigated land and 12.3% for ranchland. Also on the list:
- Kansas: +10.3% non-irrigated, +15.8% irrigated, +6.7% ranchland
- Missouri: +5.5% non-irrigated, +8.3% ranchland
- Nebraska: -1.2% non-irrigated, +2.3% irrigated, +9% ranchland
- Mountain States (Wyoming, Colorado and northern New Mexico): +7.8% non-irrigated, + 5.3% irrigated, +8.3% ranchland
One surprise: Land rents are already headed lower, the Chicago Fed survey shows. Most experts had predicted a greater lag between land value decreases and rents. Cash rents district-wide posted a 2% decline for 2014 relative to 2013, the first average decrease since 1999 and the largest decrease since 1987.
Illinois registered the largest rent decrease at 4%; Iowa rents fell 3%; and Indiana, Michigan and Wisconsin rents saw a 1% decline. Adjusting for inflation, cash rental rates decreased about 4%--only the second negative result in the past decade using this measure. "Changes in cash rental rates have tended to lag changes in farmland values, but did not in 2014," according to the report.
By contrast, costs are not going down. Input expenses for corn, soybeans and wheat are not expected to moderate from year-ago levels, the Kansas City Fed report notes. Meanwhile, interest rates have declined.