Farmland values continue to rise

Dec 3, 2010
by DTN

Midwest farmland values rose for the fourth consecutive quarter, posting the largest increase in two years, as high crop and livestock prices fueled a surge in agricultural income, the Federal Reserve Bank of Chicago said.

Farmland increased 10 percent during the three months ending September compared with the same period a year earlier, the Chicago Fed said in a report, citing a recent survey of Midwest agricultural bankers. The survey didn’t provide dollar values.

Land prices recovered from a 2009 slump as stronger exports and tighter global grain supplies sent corn, soybean and wheat prices to multi-year highs. Values may continue rising this quarter amid steppedup demand to purchase farmland, said David Oppedahl, an economist at the Chicago Fed.

“Expectations that farmland values will rise during the fourth quarter of 2010 dominated expectations that they will fall,” Oppedahl said in the report. According to the survey, 48 percent of respondents anticipated higher fourth-quarter values, while 49 percent expected stable values.

The 10 percent gain was the biggest year-over-year increase for any quarter since a 14 percent rise during the third quarter of 2008. This year’s appreciation still lags the market upswing of 2007-08 when values rose 14 percent to 16 percent, and the mid- 1970s boom when quarterly land prices soared as much as 34 percent, according to Fed data.

About 60 percent of respondents expected higher demand among farmers to purchase farmland this fall and winter, Oppedahl said. With the value of “good” agricultural land rising so quickly, “there were reports of more farms put up for sale than in recent quarters,” he said.

In an e-mail, Oppedahl said there wasn’t a lot of farmland for sale earlier this year, “so demand exceeded supply for some markets and types of land.”

Whether farmland continues appreciating in 2011 “depends a lot on the changes in corn and soybean prices,” he said. If grain prices retreat further, “it’s unlikely farmland values will keep rising.”

Iowa farmland led gains during the third quarter, rising 13 percent, the Chicago Fed said. Indiana and Michigan values rose 11 percent and 10 percent, respectively, while Illinois increased 8 percent. Wisconsin values rose 3 percent after declining in the second quarter when dairy market conditions were weaker.

According to a USDA report in August, Iowa’s cropland averaged $4,100 an acre this year, up 1.2 percent from 2009. Illinois averaged $4,820 an acre, up 3.2 percent, and Indiana averaged $4,030, up 2 percent.

Michigan averaged $3,300 an acre, down 2.1 percent, and Wisconsin averaged $3,610, down 1.1 percent, USDA said.

This year’s values compare to a depressed market in 2009 when farmland fell in three of four quarters as cattle and hog prices eroded and the overall economy sagged. In 2010, net cash farm income nationwide is expected to climb 23 percent, to $85.3 billion, Oppedahl said, citing a USDA estimate.

Last week, corn averaged $5.12 a bushel on central Illinois cash markets, up 41 percent from a year earlier, according to USDA. Soybeans in central Illinois averaged $12.38 a bushel, up almost 29 percent. — DTN