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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 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
Have Farmland Values Seen Their Top?
Jeff Caldwell 08/16/2013 @ 2:21pmMultimedia Editor for Agriculture.com and Successful Farming magazine. Corn and soybeans aren’t worth as much as they were a year ago. That’s got some farmers staring down the barrel of a breakeven price for corn and soybeans that may not be attainable based on current prices for the crops and the inputs it will take to raise them. And much of the expense side of the equation adding up to that necessary price comprises farmland. Ask a lot of farmers about the prospect of lower land costs in the coming year or so and many see that as an almost laughable scenario. Land prices simply haven’t fallen even though current levels make it tough to yield a profit on corn and soybean acres. In other words, $4.25 casn corn and $300/acre land rent don’t mix very well. “Ha! They should go down, but will they? I don’t think so,” says William Bruere, who with his family operates Bruere Farms near Prole, Iowa. “Despite lower farm income and expectations of additional declines, farmland values surged further during the second quarter. Irrigated cropland values in the District jumped 25% from a year ago. Nonirrigated cropland values advanced 18% from the previous year, a slightly slower pace of growth than in the first quarter,” says Nathan Kauffman, economist with the Federal Reserve Bank of Kansas City in a report released this week. But, farmers say lower grain prices make up just one piece of the land price crunch. One other element lies outside the farm sector; as long as investors have reason to remain anxious about the general equities market, it’s enough to keep capital streaming into land. “Crop prices are not the only thing supporting land values, but is one of them. Cheap money in the form of low interest is another,” says Agriculture.com Farm Business Talk veteran advisor sw363535 . “Federal borrowing and dumping of cash into the economy has helped the stock market values as much as grains prices. “If land prices do not come back down with the grain prices, it is not a good omen for the rest of the economy. Some of the Value of farm land has been fear-driven…or at least lack-of-faith driven.” This movement in land comes despite widely documented lower farm incomes based on lower grain prices that Kauffman says have driven higher farm loan volume in recent months. “Lower farm income boosted operating loan demand and hindered loan repayment rates in the second quarter. According to survey respondents, operating loan demand rose to its highest level in more than two years,” he says of the Fed’s most recent survey of ag lenders. “Loan repayment rates improved modestly, but bankers expected repayment rates to fall in the future with weakening farm income.” History — not necessarily specific conditions right now — sides with sw363535 ‘s assertion about the need for land prices to slip. Farm Business Talk senior contributor and farmland investor rswfarms says based on almost 80 years of data in Iowa, a trend of return on land investment of 4% to 6% has remained intact. It’s fluctuated from as much as 15% to as little as 1%, he says, but it’s always circled back to that average range for a normal corn-soybean rotation. “Currently for Iowa cropland growing corn and soybeans, with average yields, a $14,000/acre land cost, and a corn and soybean cash price of $4.25 and $11.50, the ROI ratio is in the 3% to 3.5% range. This is on the low end of the 75-year average, so if all things stay the same for the 2013 crop year it would not surprise me to see maybe a 5% decline in values for the 2014 fiscal year to get back to the average ROI ratio of 4% to 6%,” rswfarms says. “Personally, I see land leveling out for the rest of 2013, with the total 2013 appreciation rate being around the 18% to 20% rate. In 2014, with again normal yields and prices at $4.25 corn and $11.50 soybeans, a 5% decline could be in the cards for the fiscal 2014 year. Could we see another mid-1980s farmland crash where Iowa farmland went from $5,000/acre down to $850/acre for the best 80+ CSR dirt? No, I don’t see that happening and I will back up my statement by betting a 12-pack of beer.” Some ag lenders agree that the time is nigh for a downturn in land prices. In his survey, Fed economist Kauffman says while many see more of a leveling-off in land values in the near term, the number of those seeing a trend lower is growing. And, his data confirm rswfarms ‘ idea that the slide won’t amount to much if it does reach fruition. “While most bankers expected farmland values to remain at current levels, an increasing number of respondents felt farmland values may have peaked. Compared with previous surveys, fewer bankers expected farmland values to keep rising. More bankers also expected farmland values to drop after harvest likely due, at least partially, to expectations of lower farm income,” Kauffman says. “Among bankers anticipating a decline, though, a majority estimated farmland values would fall less than 10 percent during the next year. Very few bankers expected that farmland prices would drop more than 10%.” But, will this all happen? Will land values proceed to turn lower in the near future? Though the numbers indicate they should and will, farmers say they have little reason to believe they will see lower values and rents in the next year. “I’m willing to bet that any good land for sale would bring prices right around what we’ve seen in the past couple of years. That is, I don’t have any reason to expect a decline in value in the near future,” says Farm Business Talk veteran advisor Jim Meade / Iowa City . “The county sure doesn’t think so; my taxes have gone up again.” Continue reading
