Consensus Builds: Farmland Values Are Looking Up as Incomes Rise, Interest Rates Fall

Bankers’ attitudes towards farmland values have shifted during the past few years, with more than 40% expecting prices for non-irrigated cropland to rise by 10% or less, according to a survey by the Kansas City Federal Reserve. (Chart courtesy of the Federal Reserve Bank of Kansas City)

MT. JULIET, Tenn. (DTN) — Federal Reserve system banks — covering a swath of the country stretching from Montana to Indiana — report strengthening land values and improving credit conditions, although the Kansas City and Chicago branches both mentioned regions that rely more heavily on cattle production aren’t seeing the same boom that’s occurring in crop regions.

The Federal Reserve Bank of Chicago noted in its quarterly letter that agricultural land values increased 6% in 2020, the largest gain since 2012. Its survey of bankers found that 58% think land values will continue to rise through at least March, and 42% expect then to be stable. No one said they anticipate land values to decline. The Chicago Fed district covers all of Iowa as well as parts of Illinois, Indiana, Michigan and Wisconsin.

The Kansas City district is more geographically diverse, encompassing all of Colorado, Kansas, Nebraska, Oklahoma and Wyoming as well as parts of Missouri and New Mexico. Yet, the value of all types of agricultural land increased by an average of 4% compared to the prior year, the highest average quarterly increase since 2014. The outlook is more notably optimistic than recent years, with less than 15% of bankers anticipating non-irrigated cropland values to decline in the next year, while more than 40% see prices increasing.

The Minneapolis Federal Reserve Bank also reports stronger farmland values and higher cash rents. Non-irrigated cropland increased an average of 3.6% and irrigated land increased 6.9% across the district, which spans from the Upper Peninsula of Michigan and northern Wisconsin to Montana. Cash rents climbed by 6.2%.

“Increases in commodity prices at the end of 2020 and robust support from government payments boosted economic conditions in the agricultural sector in the fourth quarter,” wrote Nathan Kauffman, vice president of the Kansas City Federal Reserve, and Ty Kreitman, assistant economist, in their post. “A majority of bankers in the District indicated that farm income was higher than a year ago for the first time in eight years, boosting liquidity and loan repayment capacity, and providing renewed support for farm real estate. Overall, agricultural conditions in the first quarter of 2021 in the Kansas City Fed region were poised to remain strong for the first time since 2013.”

The notable exception is in cattle country, where the higher dependence in livestock revenues and increased drought pressures lowered bankers’ optimism, like Oklahoma and the Mountain States. “In fact, about 30% of respondents in those states indicated that incomes were lower than a year ago, compared with only 8% in all other states.”

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