Farmland values rose 25 percent during the past year in several Midwestern and Western states, the biggest one-year spike for at least three decades.
The Federal Reserve Bank of Kansas City says the increase is due to “elevated levels” of farm profits and record low borrowing costs. The Federal Reserve said prices for “good” Iowa farmland soared 31 percent during the year to Oct. 1, and rising 11 percent from July 1 alone.
The increases in farmland prices were the largest since 1977, and may be succeeded by further growth. Economists note that a decline in corn and soybean prices this fall has not diminished demand for farmland.
Despite the enthusiasm for land, investors are said to be wary as prices continue to rise. Many have fears that farmland values are a bubble about to burst. Others believe the tell-tale signs of an unstable boom are lacking.
Unlike the boom-bust of the 1980s, buyers are now paying cash, not relying on credit, and farmers are paying down the debts. Analysts also note that demand for U.S. grains by China and other countries remains strong as the world’s population has topped 7 billion this year. Experts also note that demand for biofuels, which utilize 40 percent of the U.S. corn supply, remain strong.
In the Plains states, cropland values increased at 25 percent while ranchland values rose at 14 percent. Nebraska posted the strongest gains with irrigated and nonirrigated land values rising approximately 40 percent above year-ago levels. In Oklahoma, in the midst of a historic drought, saw values increase by 10 percent.
The Federal Reserve Bank of Kansas City’s report noted the largest gain in ranchland values was found in Nebraska, with a 26 percent increase. That was followed by a 12 percent increase in Kansas ranchland and 10 percent increases in Missouri and Mountain States. Oklahoma ranchland saw the smallest increase at 5 percent. Texas land values were not included in the report.
“Farm credit conditions generally held steady across all district states in the third quarter,” the Kansas City Fed said. “Bankers reported strong agricultural loan portfolios even with varied farm income levels. The loan repayment index was little changed from the second quarter and remained well above year-ago levels.”