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Fed Says Some U.S. Farmland Values Surge More Than 25 Percent
Carey Gillam, Reuters | August 16, 2013 KANSAS CITY, Mo. – Farmland prices in key U.S. crop regions surged more than 25 percent over the past 12 months as demand for land remains strong despite a decline in farm income, two Federal Reserve bank reports said on Thursday. Prices paid for irrigated cropland in a central U.S. region that includes Kansas, Nebraska, Missouri, and Oklahoma jumped 25.2 percent from a year ago, according to a report by the Federal Reserve Bank of Kansas City. The jump marks the ninth consecutive quarter in which irrigated cropland values have risen more than 20 percent year-on-year. Non-irrigated cropland rose 18 percent on a year ago, while ranchland rose 14 percent, the report said. Gains were weaker for ranchland, particularly in Oklahoma and some mountain states, because persistent drought has left pastures in poor condition. In the Midwest and in some Mid-South states including Arkansas and parts of Missouri, Mississippi, Tennessee, Kentucky, Indiana and Illinois, prices paid for quality farmland rose 20.6 percent over the last year to $5,672 per acre on average, according to a report by the Federal Reserve Bank of St. Louis. However, average ranch or pastureland values for the Midwest and Mid-South district increased only about 1 percent to $2,372 per acre over the past year, the report said. The gains come even as farm income in many states is declining, in part due to reduced wheat production revenues and losses in the cattle sector, according to the Kansas City report. The reports are based on surveys of bankers, who pointed to the overall wealth of the farm sector, the current low interest rate environment and a lack of alternative investment options for the price rises. Still, there is a growing sense that values are nearing, or have reached, a peak. While most bankers expected farmland values to remain at current levels, an increasing number of bankers responding to a survey by the Federal Reserve Bank of Kansas City felt farmland values may have peaked. Compared with previous surveys, fewer bankers expected farmland values to keep rising. Among those expecting values to fall, most thought the decline would be less than 10 percent, the Kansas City report said. The Kansas City federal reserve district encompasses key wheat-producing states and largecattle and livestock production areas, while the Chicago district is dominated by corn and soybean farms, as well as large hog and dairy operations. Continue reading
Farmland Ownership Trends Shifting
Jeff Caldwell 08/06/2013 @ 9:15amMultimedia Editor for Agriculture.com and Successful Farming magazine. As farmland values have climbed over the last few years, it’s caused a slowing in a couple of key trends in who owns that land, shifts that could ultimately affect land accessibility for young and beginning farmers, according to one Iowa land values expert. Every five years, Iowa State University Extension farm management specialist Mike Duffy conducts a survey of farmland owners in his state. The survey has been conducted since the early 1980s, a time period that’s seen some major ups and downs in the land market. “The latest Iowa farmland ownership survey is compared to previous surveys dating back to 1982, during the time when farmland values first started collapsing after the boom of the 1970s,” Duffy says, adding that the full results of the survey will be released later this fall. “Looking at the various surveys over the past 30 years shows some of the changes in farming technology, demographics, and other patterns. The 2012 survey also shows the impact of the current land boom on these trends.” The sharp climb in land values since the last land ownership survey conducted in 2007 — a time when values in Iowa had more than doubled — has caused a couple of shifts in ownership that could carry implications for young and beginning farmers in the coming years, provided values are sustained. First, who’s owning the land? Last year, almost one third of Iowa farmland was in the hands of someone over the age of 75. That number has been ticking up since 1982, but just in the last five years since the sharp value climb, Duffy says there’s been a noticeable change. “The percent of land owned by people in this age category had been steadily increasing since 1982, when 12% of the land was owned by someone over 75 years old. The trend toward increasing age does appear to have been slowed by the boom,” Duffy says. “There are younger owners, although they represent a small percentage of the acres. Over half, 56%, of the farmland in Iowa is owned by someone over the age of 65.” Absentee land ownership has also declined in the last few years since the runup in land values. In 2012, 21% of the farmland in Iowa was owned by an absentee owner. That’s the same as in 2007, but up 15% from 1982. Duffy says the flattening of this number could also foreshadow a major trend shift. “Another trend that seems to have slowed is the percent of land owned by people who don’t live in Iowa full-time,” he says. “It appears that the higher land values had an impact on the ownership by non-Iowans.” These trends are important for all parties involved in farmland ownership and management, but mostly for those on the opposite ends of the age spectrum, Duffy says. This makes it important for those parties to watch them closely and take them into account in land purchase and lease agreements down the road. “Ownership of Iowa’s farmland and access to the use of the land is critical for the future of the State. The impact of the ownership on both beginning farmers and the retiring farmers will be crucial,” Duffy says. “The current situation with respect to farmland ownership in Iowa is a good topic for discussion among landlords, family or heirs, and agribusiness professionals.” Continue reading
Farmland Values Sway Owners
By: Amy Mayer Farmland values may begin to fall as commodity crop prices come down. This wheat grew earlier this summer in southwest Iowa. (Amy Mayer/Harvest Public Media) Buy? Sell? Hold? These are the options for cropland owners, whether they currently farm, are retired farmers or never worked the land themselves. How the recent high land values influence that decision obviously depends on a family’s particular circumstances. This connection was explored in our “Changing Lands, Changing Hands” series this summer. David Klein, vice president and managing real estate broker at Soy Captial Ag Servcies in Bloomington, Ill., said the market in Illinois has been stable. And that makes it attractive for buyers he describes as “believers in farmland.” These are people who would rather invest in land than leave their money sitting in a bank. “Right now there’s still a lot of cash being spent,” he said, as opposed to land being purchased with mortgages. Cropland values have gone up every year since 2003, except for 2009. And from 2010 to 2011 in the Northern Plains the USDA estimates the value of farm real estate increased nearly 27 percent. This sustained period of high values prompts some observers and economists to wonder whether farmland is in a bubble that is destined to burst. “Our farmland market here has continued to be pretty stable,” Klein said. He recently tweeted the sale of 240 acres of prime cropland in Edgar County, Ill., when it sold for $12,017 per acre. He said that’s a price right in the range of where Illinois land is selling, with some sales he calls outliers yielding as much as $15,000 to $16,900 per acre. Klein said investors looking to maximize return are more likely to buy larger tracts of land, at lower per-acre prices, while farmers may purchase “the farm next door,” spending more per acre on a smaller overall purchase. “Illinois did not rise as high as Iowa on some of the higher highs,” he said. Last year, a record sale in northwest Iowa captured $21,900 per acre. An article this week in the Wall Street Journal suggested cropland values may be in decline: Cropland values in the Midwest already are losing steam after a surge of nearly 80% in the past four years to an average of $6,980 an acre. The latest appraisals done by farm lender Farm Credit Services of America show that land-value gains slowed in the first six months of the year. Purdue University forecasts a decline in land values in parts of Indiana in the second half of 2013. For now, though, one result of the high land prices that Michael Duffy, an agricultural economist at Iowa State University, has noted is that young people are taking a different view of returning to a family farm business. “Our students here,” he said, “some of them, the 4.0 students, they’re going back to the farm. They see this as an opportunity.” Duffy said that is consistent with other boom periods in land values. Other young people from farming families may choose to hold onto inherited land that they have no intention of farming because they believe they can make money renting it. Duffy expects the data from the 2012 Census of Agriculture is likely to show growth in the percentage of farmland owned by people younger than 35. But, Duffy said, as commodity crop prices come down, land values will, too. “It is less certain the speed they will fall,” Duffy wrote in a paper for Iowa State Extension, “but it appears at this time land values will correct more slowly over a period of time.” So Duffy does not predict a crash like the farm crisis of the 1980s, but the best time to sell may have passed — at least for now. Continue reading
