Bank Survey Finds Near-10% Rise in Cash Rents Expected for 2013

Published on: 16:26PM Mar 21, 2013

Mike Walsten

A survey of rural bankers in 10 Midwestern states finds then anticipating farmland cash rents to rise 9.3% in 2013. That finding is part of the regular monthly Rural Mainstreet Index update of rural banker attitudes conducted by Creighton University Economist Dr. Ernie Goss. The March update found: the rural economy continues expansion; bankers expect cash rents for farmland to grow by 9.3% this year; agriculture input prices are expected to grow by 6.5% from last year; and more than half of bankers reported an upturn in the percentage of farmland purchases that are bank financed.

The Rural Mainstreet Index (RMI), which ranges between 0 and 100 with 50.0 representing growth neutral, dipped to a still healthy 56.9 from February’s 58.2. “Very healthy farm income continues to boost the Rural Mainstreet economy though growth has slowed a bit,” says Goss. However, the survey found more and more bankers concerned about recent strong growth leading to a bubble. For example, Dale Bradley, CEO of The Citizens State Bank in Miltonvale, Kan., said, “I still think we are on the bubble.”

The farmland price index expanded slightly to a strong 67.2 from February’s 67.0. This is the 40th consecutive month that the farmland-price index has been above growth neutral. “Current readings are consistent with farmland price growth between 12% and 16%. The farm equipment-sales index declined to 60.5 from 65.8 in February. The Federal Reserve’s cheap money policies continue to bolster farm commodity prices, farm income, farmland prices and farm equipment sales. The Fed has indicated little change in this pro-agriculture money policy for 2013, which means we will likely continue to see healthy growth in farmland prices and farm equipment sales,” states Goss.  

This month bankers were asked several questions related to agriculture conditions in the region.  First, they were asked how much they expected the cost of farm/ranch inputs, such as fertilizer, to increase for 2013.  On average, bankers anticipate growth of 6.5% from last year’s levels.  Jeff Bonnett president of Havana National Bank in Havana, Ill., said he and his bank officers were expecting a 9% growth from 2012 levels.

Second, bankers were asked how much growth they expected in agriculture land rents for 2013.  A 9.3% increase in cash rents for farmland is expected for 2013.  

Finally, bankers were asked to gauge the growth in the financing of farmland purchases over the past two to five years.  Approximately 3.2% of bank CEOs indicate they were seeing the highest expansion in the financing of farmland in decades. Approximately 52.4% indicate an increase in the financing of farmland. Another 19% report no change in the percentage of farmland purchases that were financed, while 28.6% indicate a reduction in financing of farmland sales (i.e. an increase in cash sales).

According to Michael Flahaven, president of Wenona State Bank in Wenona, Ill., “Farmland financing has increased at our bank. However, after talking with other bankers, I think we are the exception.”

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