Farmland values: Not falling but not accelerating as fast
Soft landings are desired by airline travelers and economists. But in the case of farmland values, a soft landing is much more preferable than the bursting of some bubble. And when current data on farmland values is examined, it may seem the throttle is being pulled slowly back for a soft entry into price stability. No one is saying land values have stopped rising or are declining; but the rate of acceleration has slowed, and it may be an early indication that the exponential rise in farmland prices has moved into middle age, so to speak.
Commercial bankers throughout the Corn Belt have a vested interest in the price of farmland. They may carry a mortgage on it, finance the next buyer of it, or earn income from financial services provided to the owner of the farmland. They are tied in rather tight to the farmland market and have been reporting values of land transactions, price trends, loan rates, and creditworthiness of borrowers to the Federal Reserve Banks that shepherd the region.
Economist David Oppedahl says the value of good farmland is still on the rise, as he surveyed commercial bankers in the first quarter of the year. But he added, “Signs of moderation in farmland value gains emerged.” Oppedahl reported that land values rose 7 percent in the last three months of 2012, and said that was more than the succeeded months of 2013, “District agricultural land values rose 4 percent in the first quarter of 2013 relative to the fourth quarter of 2012, easing down from the quarterly increase of last year’s final quarter. However, the year-over-year increase in District farmland values was 15 percent in the first quarter of 2013, almost matching the annual gain of 2012.” That annual 2012 gain was 16 percent, reported by Oppedahl earlier this year.
Data compiled on farmland sales in Wisconsin for the period of January through March of this year actually showed a 3 percent decrease compared to the first quarter of 2012.
Oppedahl said, “For Illinois and Iowa, the increases in farmland values on a year-over year basis were close to those of the previous quarter, although these District states’ quarterly increases were softer than those of the last quarter.” Of the 219 bankers surveyed, he said 59 percent reported higher demand for farmland than a year ago, but there was also an increase in the amount of farmland available for sale as well.
Eighth Federal Reserve District—St. Louis
Softer farmland values are even more pronounced in the St. Louis District which encompasses parts of the Corn Belt and the Delta regions.
Economists surveyed 55 commercial bankers in the Eighth District and said, “Surprisingly, reported quality farmland, ranchland, or pastureland prices are down slightly relative to the prices indicated in the fourth quarter of 2012.
In this quarter’s survey, the reported value of quality farmland decreased by an average of 2.3 percent and that of ranchland or pastureland decreased by an average of 5.1 percent from last quarter.”
The economists at the St. Louis Fed say the bankers they surveyed still expect land values to continue rising, but those banker expectations for future land value increases have moderated somewhat. Apparently fewer commercial bankers believe land values will continue to climb over the next quarter. And they are “moderately tempering” their short term expectations for cash rents.
Tenth Federal Reserve District—Kansas City
Across the Western Corn Belt, Fed economists ventured into similar territory, comparing prior quarters that had much more rapid growth in land values. The Kansas City economists said, “Land values climbed further in the first quarter of 2013. District cropland values rose 20 percent and ranchland values rose 14 percent year-over-year, a modest slowdown compared with the first quarter of 2012.”
The Federal Reserve Bank surveys all found similarities in the trends of land values in their respective districts. While land values had not fallen, or were stable, they were all still rising, but at a lower rate. The commercial bankers reporting to the Fed still expect higher land values, but the rapid growth seen in the past 1-2 years has moderated and the rate of acceleration has slowed.