Content ID

327970

Corn Belt land values soar 23% in past year

Despite rising values, farmland may be overvalued, respondents say.

Agricultural land values in Illinois, Indiana, Iowa, Michigan and Wisconsin collectively soared 23% from April 2021 to April 2022, according to the May Ag Letter from the Federal Reserve Bank of Chicago. The data comes from survey responses from agricultural bankers in this region, which makes up the Seventh Federal Reserve District.

Momentum is expected to continue, says David Oppedahl, senior business economist at the Chicago Federal Reserve, who authored the report.

Higher prices paid for farmland resulted in greater amount of farmland for sale in the six-month period ending in March, compared to that from a year ago.

“Given these upward trends, 48% of the responding bankers forecasted District farmland values to be higher during the second quarter of 2022,” Oppedahl writes.

Demand for farmland – especially high-quality farmland – is vigorous. Investor activity in the farmland sector expanded in the three-to-six-month period ending with March 2022 relative to the same period in 2021, according to lenders within the Seventh District.

State % Change, April 2021 to April 2022, Good Farmland
Illinois

18%

Indiana 23%
Iowa 28%
Michigan n/a
Wisconsin 13%
Seventh District 23%

Cash rental rates increased 11% from 2021 to 2022 throughout the District, Oppedahl writes. Specifically, cash rents were up:

  • Illinois, 10%
  • Indiana, 11%
  • Iowa, 12%
  • Wisconsin, 8%
  • Michigan did not have enough survey responses.

Oppedahl writes that farmland values and cash rents have risen in part due to higher farm income, which are propelled somewhat by world events, including drought in South America and parts of the U.S., and Russia’s invasion of Ukraine.

Prices received by farmers for livestock and associated products are up 39%, while crop prices are up 22%. Rising input costs and dwindling pandemic relief funds from the federal government have dinged farm income, but commodity prices have bolstered farm income and in turn helped boost farmland values and cash rents, according to Oppedahl.

Despite the demand for farmland, many respondents in Illinois, Indian and Iowa believe ag land is overvalued. If commodity prices soften and interest rates increase, real estate values would likely decline, he adds.

Other key points from the May Ag Letter are:

* Average nominal interest rates are 4.464% for operating loans; 4.74% for feeder cattle loans and 4.44% for real estate loans. This is the highest since 2020, but adjusted for inflation, are the lowest since 1974.

* Ag credit conditions improved in the First Quarter of 2022. Repayment rates are up and only 3% of respondents reported higher levels of loan renewals and extensions compared to the same time last year. Moreover, just 1% of borrowers had more carryover debt in 2022 than in 2021.

* The number of farms and acreage sold during winter and spring 2022 is up compared to a year ago.

Agricultural land values in Illinois, Indiana, Iowa, Michigan and Wisconsin collectively soared 23% from April 2021 to April 2022, according to the May Ag Letter from the Federal Reserve Bank of Chicago. The data comes from survey responses from agricultural bankers in this region, which makes up the Seventh Federal Reserve District.

Momentum is expected to continue, says David Oppedahl, senior business economist at the Chicago Federal Reserve, who authored the report.

Higher prices paid for farmland resulted in greater amount of farmland for sale in the six-month period ending in March, compared to that from a year ago.

“Given these upward trends, 48% of the responding bankers forecasted District farmland values to be higher during the second quarter of 2022,” Oppedahl writes.

Demand for farmland – especially high-quality farmland – is vigorous. Investor activity in the farmland sector expanded in the three-to-six-month period ending with March 2022 relative to the same period in 2021, according to lenders within the Seventh District.

Cash rental rates increased 11% from 2021 to 2022 throughout the District, Oppedahl writes. Specifically, cash rents were up:

  • Illinois, 10%
  • Indiana, 11%
  • Iowa, 12%
  • Wisconsin, 8%

Michigan did not have enough survey responses.

Oppedahl writes that farmland values and cash rents have risen in part due to higher farm income, which are propelled somewhat by world events, including drought in South America and parts of the U.S., and Russia’s invasion of Ukraine.

Prices received by farmers for livestock and associated products are up 39%, while crop prices are up 22%. Rising input costs and dwindling pandemic relief funds from the federal government have dinged farm income, but commodity prices have bolstered farm income and in turn helped boost farmland values and cash rents, according to Oppedahl.

Despite the demand for farmland, many respondents in Illinois, Indian and Iowa believe ag land is overvalued. If commodity prices soften and interest rates increase, real estate values would likely decline, he adds.

Other key points from the May Ag Letter are:

  • Average nominal interest rates are 4.464% for operating loans; 4.74% for feeder cattle loans and 4.44% for real estate loans. This is the highest since 2020, but adjusted for inflation, are the lowest since 1974.
  • Ag credit conditions improved in the First Quarter of 2022. Repayment rates are up and only 3% of respondents reported higher levels of loan renewals and extensions compared to the same time last year. Moreover, just 1% of borrowers had more carryover debt in 2022 than in 2021.
  • The number of farms and acreage sold during winter and spring 2022 is up compared to a year ago.
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