Farmland Values Post the Largest Increase since 1976
Feb 21, 2012
From January 1, 2011 to January 1, 2012, farmland values in the 7th Federal Reserve District rose 22%, the largest annual increase since 1976 according to the Federal Reserve Bank of Chicago’s fourth quarter survey of Farmland Values and Credit Conditions Report. The value of "good" farmland increased 4% in the fourth quarter compared to the third quarter of 2011. All District states posted higher year-over-year increases in farmland values and the largest year-over-year land value increases came from Indiana and Iowa at 27% and 28%.
The outlook for farmland values in the first quarter of 2012 are promising as 43% of those surveyed expect farmland values to continue an increase through March 2012.
The district experienced the largest increase in 35 years, with farmland values increasing 22% year over year. This increase is substantial when comparing it to the compound annual growth rate for agricultural land values (adjusted for inflation) which has been 5.5% since 1986.
According to the U.S. Department of Agriculture's (USDA) most recent forecasts, 2011 net farm income is anticipated to be $98.1 billion in 2011, a 24% increase from 2010 levels.
The key drivers of net farm income in 2011 were corn and soybean prices. Corn prices averaged 57% higher compared to 2010, while soybeans averaged a 26% increase over last year.
Although feed costs have increased, livestock and dairy prices have risen as well. Milk prices increased 23%, hog prices increased 21%, and beef cattle prices increased 21% year-over-year
The agricultural credit condition continues to improve across the 7th district from 2010 to 2011. Of the total respondents, 51% reported higher rates of loan repayment compared to last year. Less than 2% of the volume of farm loans are considered having major or severe repayment problems. Due to higher concentrations of animal agriculture, Iowa and Wisconsin banks hold larger volumes of problem loans than other states.
The index of funds available in the fourth quarter of 2011 was higher than the funds available in the same time period last year. 56% of responding banks indicated there were more funds available during the fourth quarter this year compared to last year. Only 3% indicated there were fewer funds available this year compared to last year.
Demand for non-real-estate loans continued to decline. Only 19% of respondents reported higher demand for non-real-estate loans over last quarter, and 32% reported a decrease in demand.
Interest rates for agricultural loans declined in the fourth quarter of 2011. Farm operating loans average interest rate was 5.47%. Declining for the fifth straight year, interest rates on farm real estate were 5.20%. Although interest rates are lower, 24% of banks tightened credit standards for farm loans in the fourth quarter of 2011 compared to 2010.
1st Quarter Outlook
Bankers expect non-real-estate loan volumes to increase in the first quarter of 2012. They expect larger volumes of farm machinery, operating, and grain storage construction loans in the first quarter of 2012 compared to last year and a decrease in loan volumes guaranteed by the Farm Service Agency and for farms with cattle.
The Federal Reserve Bank of Chicago’s fourth quarter survey of Farmland Values and Agricultural Credit Conditions Report is a summary of the 7th District’s value of farmland, farm loan portfolio performance, and on-farm income. The 7th District consists of the entire state of Iowa, and portions of Illinois, Indiana, Wisconsin, and Michigan.
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