Farmland Index Shows Slippage In Pace of Price Gains
Jul 28, 2011
Some analysts are making much out of the latest survey results from Creighton University. Economics Professor Dr. Ernie Goss conducts a monthly survey of rural bank CEO's in 10 states. It monitors the health of the rural main street economy in the heartland. His latest survey finds the farmland price index slipped for the third consecutive month. Of course, any slippage is a cause for and "oh oh" moment. And Goss highlights the slippage by saying: “Even though this is the 18th straight month the index was above growth neutral, we are tracking consistent slippage in farmland price growth as the index has declined for three straight months. Consistent with the decline in farmland price growth, the farm equipment sales index sank for the fourth consecutive month to 53.7 from 63.1 in June,” says Goss.
His point is valid. But rather than calling a turn in demand for the farmland market, the index is more likely indicating that the recent power in demand is leveling out, and not going away. After all, the value of Iowa farmland has surged 36% while Nebraska farmland has jumped 23% the past year, according to the semi-annual update from Farm Credit Services of America (FCSAmerica), Omaha, Nebraska. It's hard to maintain that kind of rate of increase. The recent sale of 237 acres in Grundy County, Iowa, for an average price of $11,338 an acre hardly suggests buyers have left the land market.
The slippage in the index reflects the divergence in the farmland market. The demand focus is on quality cropland. Demand for lower-quality cropland, pasture and ranchland is not nearly so strong. Again, the FCSAmerica appraisal update makes that point. The average value of its benchmark farms in South Dakota, a state with a much higher percentage of pasture and ranchland than either Nebraska and Iowa, rose 14% versus Nebraska's 23% and Iowa's 36% gains. Wyoming, meanwhile, posted a 3% decline, according to FCSAmerica.
The easing in the index also reflects problems associated with the continuing drought in the Plains and concerns over the intense heat this summer causing reduced yields. Meanwhile, the index remains above 50, which is growth neutral. That's a positive sign. See the Creighton survey here.
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