Tag Archives: values
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
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.” Continue reading
Survey: Farmland Values Continued To Rise In Second Quarter 2013
Farmland values continued to rise during the second quarter of 2013, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. August 15, 2013 Farmland values continued to rise during the second quarter of 2013, according to the latest Agricultural Finance Monitor published by the Federal Reserve Bank of St. Louis. Farm income, as well as capital and household spending, also increased slightly compared with a year ago. The survey for the report was conducted from June 11 through June 28, 2013. The results were based on the responses of 48 agricultural banks located within the boundaries of the Eighth Federal Reserve District. The Eighth District comprises all or parts of the following seven Midwest and Mid-South States: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. Farmland Values On average, Eighth District quality farmland and ranch or pastureland prices were higher than first-quarter 2013 and second-quarter 2012 levels. In addition, many lenders reported that they expected prices for quality farmland and ranch or pastureland to increase in the third quarter relative to the third quarter 2012. Quality farmland prices averaged $5,672 per acre in the second quarter of 2013, up 11% from an average $5,111 in the first quarter of 2013 and up more than 20% from $4,705 per acre in the second quarter of 2012. Ranch and pastureland prices were also slightly higher in the second quarter of 2013, with District lenders reporting average prices of $2,372 per acre, up about 4% from $2,274 per acre in the first quarter 2013 and up close to 1% from $2,349 per acre the previous year. Looking ahead to the third quarter, lenders reported that they expect land values to rise relative to last year. “A proportionately larger number of respondents expect quality farmland and ranch or pastureland values to increase in the third quarter relative to a year earlier,” the report said. Using variables based on diffusion index methodology, the average expectations index for quality farmland in the third quarter of 2013 was 127, while for ranch and pastureland prices, the index value was 108. (With diffusion index methodology based on survey responses, 101-200 indicates overall expectations of higher values, while 0-99 indicates expectations of decreasing values. A value of 100 indicates expectations remain the same.) Farm Income Average farm income and spending rose slightly in the second quarter of 2013 compared with a year ago. “On net, respondents indicated that second-quarter District farm income, along with capital and household spending, increased modestly relative to their respective levels one year ago,” the report said. Based on diffusion index methodology, survey results showed an actual income index level of 108 for the second quarter of 2013 across the District. Looking ahead at the third quarter, lenders indicated they expected lower farm income, with survey results showing a diffusion index value of 91. “Across the District, bankers expect farm income to fall over the course of the next quarter compared with the third quarter of 2012,” according to the report. Cash Rents Average cash rents per acre for quality Eighth District farmland during the second quarter of 2013 were higher than the first quarter 2013 and the second quarter of 2012. For the second quarter 2013, cash rents for quality farmland averaged $183 per acre, up 6.7% from an average $171 per acre in the first quarter 2013 and up 12.9% from an average $162 per acre the previous year. Meanwhile, lenders reported cash rents for ranch or pastureland of $57 per acre, down from the first quarter’s average of $64 per acre, but remaining above last year’s average of $53 per acre. Looking forward, lenders expect rents to increase in value for all land categories during the third quarter of 2013. The report also noted that “anecdotal information collected from other sources suggests some shift in cash rents toward a variable or profit-sharing basis,” might not be fully captured in current cash rent data. Ag Loan Demand And Repayments On average, lenders reported that while demand for agricultural credit across the District remained unchanged in the second quarter compared with a year ago, they expected loan demand to pick up in the third quarter. In addition, survey results showed more funds were available to prospective borrowers during the second quarter of 2013 than a year ago, and this should remain the case in the third quarter. Loan repayment rates also remained essentially the same compared with a year ago, and expected to remain unchanged in the third quarter. Average interest rates on most types of loans increased slightly from the first quarter of 2013, with rates on variable interest loans increasing more than fixed-rate loans. Continue reading
