Fed: Farm Land Values Boom Shows Signs Of Slowing

Aug. 17, 2013 Written by Christopher Doering Gannett Washington Bureau WASHINGTON — Farmland values in the Midwest were stable during the second quarter of 2013, marking the first time they have failed to rise in four years, the Federal Reserve Bank said as bankers hinted the boom of the past few years may be coming to an end. The Federal Reserve Bank of Chicago said the average dollar value of “good” farmland across Iowa was flat for the April 1 to July 1 period. Despite the quarter, land values in the country’s largest corn and soybean producing state have jumped 18 percent since July 1, 2012 — reflecting the strong farm economy and booming demand for productive land. Similar to Iowa, land prices across other states covered by the Federal Reserve branch have seen sharp gains over the last year, but they posted mixed results during the second quarter. Land values in Indiana and Wisconsin rose 5 percent and 1 percent, respectively, but Illinois and Michigan had small decreases. Overall, the five-state region was unchanged during the second quarter with prices climbing 17 percent from a year ago. The last time farmland prices failed to rise was in the third quarter of 2009. “While the farmland values on a year-over-year basis still appeared to be soaring, changes in farmland values on a quarterly basis may be presaging shifts in the year-over-year pattern in the latter half of 2013,” said David Oppedahl, a business economist at the Federal Reserve Bank of Chicago. “Survey respondents reinforced this conclusion with their assessments that agricultural land values were likely to be flat in the third quarter of 2013.” The survey was compiled with input from 211 agricultural bankers, with 86 percent of respondents expecting stable land values through the end of September. One banker cautioned that land values would go down as grain prices fall. In recent years, record-high prices for corn, soybeans, wheat and other commodities have left growers flush with cash to purchase more land. And what the farmers don’t pay for out of their own pockets, historically low interest rates provided them with easy and cheap access to money to close the deal. But that appears to be changing. The Federal Reserve branch said interest rates on farm loans during the second quarter moved up for the first time since early 2011. And this week, the U.S. Agriculture Department estimated corn prices would average $4.90 a bushel this year, compared to $6.95 a bushel in 2012, with soybeans forecast to drop to $11.35 a bushel from $14.40. “The anticipation of lower crop revenues – especially when combined with potentially rising interest rates on farm loans – portended softness in future farmland values,” Oppedahl said. In Iowa, where rich soil, favorable weather and ethanol and livestock production help foster demand for limited growing space, farmland values have nearly doubled since 2009. Some prime real estate has sold for more than $20,000 an acre. An acre of farmland that a decade ago sold for an average of $2,275 went for about $8,300 in 2012, according to Mike Duffy, an economist at Iowa State University who watches land prices. Values have risen every year since 2000, with the exception of 2009 when they dropped 2.2 percent. Kyle Hansen, a real estate agent at Hertz Farm Management in Nevada, Iowa, said the drop in commodity prices – coupled with a cool, wet spring followed by a dry summer – has not left many farmers in a buying mood. “Some (farmers) look at what their income is going to be potentially this year or the following years when they are deciding whether they should be purchasing or not,” said Hansen. “That, too, will somewhat tame the aggressiveness of bidders at auctions. It’s somewhat of a flat market.” Hansen said farmers will probably wait until after the harvest when more is known about the output from this year’s crop and the resulting impact on commodity prices before deciding whether to resume buying land. If commodity prices are steady or higher, land values could post a “minimal increase,” he said, but if “commodity prices stay low we could see a retraction of land values.” Taylor Scott International