The farmland market appears to be in transition, moving from the hot demand-fueled market of late 2012 into a more stable market. Recent surveys conducted by the Federal Reserve Banks of Chicago, Kansas City and Minneapolis tend to confirm this trend. These banker surveys reflect continuing gains in the value of farmland during the first quarter of 2013, but the rate of that increase is at a slower pace compared to the last quarter of 2012.
For instance, the survey reported the value of good agricultural Illinois farmland rose 5% during the first quarter of 2013. That's still an amazing 20% annualized rate. But that gain is down from the 9% quarterly increase noted the previous quarter. The survey reported a 4% rise for the first quarter of 2013 in the value of Indiana farmland. That is down from the 7% quarterly gain noted the fourth quarter of 2012. The survey listed a 3% quarterly increase for Iowa, down from the 8% quarterly gain noted in the previous report.
Nebraska noted only a 1% boost in the value of non-irrigated cropland during the first quarter of 2013 - down from the 8% rise noted the fourth quarter of 2012. The survey reported a 4% rise in the value of irrigated cropland in the first quarter of 2013. That is down from the amazing 13% surge reported in the fourth quarter of 2013. Minnesota reports a rise of 5% during the first quarter of 2013. That compares to an 8% boost for the last quarter of 2012.
It does not appear that land values have continued to rise at their first-quarter pace during the second quarter and into summer. The market has been showing the signs of a market transitioning into a stable market. For example, some land auctions have posted new highs for the area, but some have gone to "no sale" for various reasons. Others have resulted in strong prices, but the "electricity" seen so often at auctions last fall is absent in the room. In addition, some auctions of poorer quality farmland have seemed "soft."
The shifting market is not surprising given the outlook for commodity prices and declining net farm income for 2013 and again in 2014. Input costs are on the rise, as usual. And interest rates have taken a sudden upswing, lifting mortgage rates. This declining outlook is naturally causing buyers to be much more cautious about purchases.
Offsetting the decline in the strength of demand is a continuing lack of supply. The end of 2012 saw a rush of properties moving to the market as those owners who needed to sell pushed their offerings into 2012 to avoid potential tax issues. With that supply removed from the market, market supplies are reduced. That reduced supply will tend to support prices as the market adjusts to the lower demand resulting from declining net farm incomes.
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