Rapid increase in farmland values in central Plains
Fueled by strong farm income and low interest rates, farmland values soared more than 20% in the central Plains during 2021, according to a quarterly survey of ag bankers by the Kansas City Federal Reserve Bank.
A majority of the lenders said they expected values to increase this year, but an equally large number “also indicated that farmland values were currently overvalued, suggesting there may still be future risks of declines,” said the regional Fed.
It was one of the few notes of caution during the rapid run-up in land values in the Farm Belt.
“The recent strength in agricultural real estate markets has been supported by strong demand, historically low interest rates, and vastly improved conditions in the farm economy,” said the Kansas City Fed. “Lenders reported a mostly favorable outlook for agriculture in the district but cited the rise in input costs as a risk to the sector … The possibility of weaker agricultural income and higher interest rates in the economy remain as risks for farmland markets.”
On average, the value of nonirrigated farmland was up 24%, irrigated farmland up 22%, and ranchland up 22% in the Kansas City Fed’s district of Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico, and the eastern third of Missouri.
“The combination of highly increased grain prices, modest production costs in 2021, exceptional local crop yields, and strong liquidity from COVID-related programs has created ag wealth improvement beyond any I have seen in my ag banking experience of over 40 years and resulted in massive appreciation in farm assets,” said a banker in northeast Kansas.
Agricultural bankers in the central Corn Belt reported a 22% increase in the values of good-quality farmland during 2021, with the largest increase, 30%, in Iowa, said the Chicago Federal Reserve Bank last week.