Farmland values in the Midwest increased 16% over the past 12 months, matching the largest increase since 2007 and last exceeded in 1979 according to the Seventh Federal Reserve District. In the first quarter of 2011, farmland values rose 5%. Farmers have been encouraged to take advantage of high commodity prices by purchasing additional land and expanding operations.
The survey by the Federal Reserve Bank of Chicago found that there was more demand for farmland in the last six months ending March 2011 compared to the same period ending in March 2010. Farmers made up the majority of farmland buyers over the last six months, which is the typical farmland buying season. The number of farms sold, acreage sold, and the amount of farmland for sale all increased as well.
Illinois, Indiana, and Iowa had farmland value increases of 17%, 19%, and 20% respectively, over the past 12 months. Michigan and Wisconsin also had strong increases of farmland values of 11% and 9% respectively. Illinois and Indiana both had quarterly increases of farmland values of a lofty 8% in the first quarter of 2011.
Cash rental rates for agricultural land rose 16% over the last twelve months, which is the second largest behind 2008, since the District began tracking cash rents in 1981. 80% of all farmland rental contracts are cash rent contracts in the Seventh District, with the remaining 16% using crop shares and 4% on other arrangements.
Balance sheets of farmers have continued to improve as advancing agricultural fundamentals have reduced the demand for farm loans. The non-real-estate agricultural loan repayment rate marked its highest point since 2008. Additionally, the index of funds available to lend reached its highest point since 1987 although collateral requirements slightly increased and real estate loan interest rates began to increase, which are currently at an average of 5.8%.
Farmer income is positioned to rise to record levels in 2011 as the USDA estimated that input costs have increased only 9.4% year-over-year while corn prices have more than doubled. Survey respondents expect farmland values to continue to increase in the second quarter of 2011 along with farm machinery, grain storage construction, and real estate loan volumes.
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