Farmland values are expected to continue rising across the Mid-South and Southeast U.S., according to the latest Farmland Market Survey released by Farmland Investor Letter. The survey, conducted from Dec. 17, 2012, through Jan. 29, 2013, was based on the responses of 77 appraisers, farm property managers, agricultural lenders, real estate brokers and land owners located in Arkansas, Florida, Georgia, Louisiana, Mississippi, Missouri and Tennessee.

Farmers and investors remain optimistic that farm sector profits will remain strong, thanks to the drought-fueled rise in commodity prices, low interest rates, and big crop insurance payouts from the 2012 drought.

Farmland Values

Both the value of non-irrigated cropland and irrigated cropland across the Mid-South and Southeast are expected to trend higher over the next three months. Survey participants estimated that non-irrigated cropland across the region was worth an average $3,338 per acre in the last quarter of 2012. Irrigated cropland values averaged $4,539 per acre.

Pasture values averaged $2,470 per acre. On an individual state basis, non-irrigated cropland values ranged from an average $5,383 per acre in Missouri to $2,337 per acre in Georgia. Irrigated cropland values ranged from $7,228 per acre in Florida to $3,606 per acre in Louisiana. Survey respondents reported that pasture values ranged from $3,223 per acre in Florida to $1,717 per acre in Louisiana.

Cash Rents

Cash rent increases continue to lag land price inflation across the region. Rents on non-irrigated cropland averaged $121 per acre, ranging from an average $72 per acre in Georgia to $206 per acre in Missouri.

Irrigated cash rents averaged $200 per acre across the region, and ranged from an average $163 per acre in Louisiana to $263 per acre in Missouri. Pasture rents averaged $32 per acre, ranging from $12 per acre in Missouri to $36 per acre in Georgia. Rent income yields, which are calculated by dividing gross cash rent by land value, offers insights into the relative pricing of land tracts regionally. Across the Mid-South/Southeast, non-irrigated tracts are estimated to be generating a 3.5% rent income yield; irrigated tracts 4.4% and pasture 1.2%.

Market Outlook

Despite the 2012 drought, farmland values are expected to continue rising. For the first quarter for 2013, most survey panelists expect cropland values to increase, while pasture values are forecast to remain stable. Respondents were most optimistic for irrigated cropland tracts, where 70% expected values to increase. A slight majority--53% of respondents--expected non-irrigated cropland values to continue to rise; 43% forecast that values would hold steady.

The U.S. Dept. of Agriculture forecasts that farm real estate values will increase an average 7.5% in 2013. US farmers borrowed an additional $6.6-billion in 2012 to finance farm real estate purchases, according to USDA estimates.