“Strong commodity prices are creating opportunities for farmers to profit despite the risks posed by drought and higher production costs.”
That’s according to the Ag Finance Update last week from the Kansas City Federal Reserve Bank.
The report indicated farmland prices increased 20-percent in the Farm Belt during the summer despite higher interest rates.
“Demand for farmland has remained strong alongside strength in the farm economy. But the acceleration in values over the past year has shown signs of easing in recent quarters,” said the monthly Update.
However, the 20-percent increase for non-irrigated cropland during the third quarter was the smallest since early 2021.
“Despite the more measured pace, farm finances remained solid following especially strong incomes during the past two years,” the report said. It is based on data from regional Federal Reserve banks in Chicago, Dallas, Kansas City, Minneapolis, and St. Louis.
“Volatility in crop markets, higher expenses, and drought are key risks but profit opportunities remained favorable alongside strong commodity prices.”
The United States Department of Agriculture (USDA) estimates net farm income will be the highest ever this year. This is due to strong global demand and high commodity prices, while warfare in Ukraine pushed prices higher.
Corn and soybean will be higher this year, tempered by slightly lower yields per acre, said David Oppendahl, policy adviser.
Midwest agriculture “has been pretty resilient,” said Oppendahl. Production is strong while input costs are up dramatically.
“So that’s creating a bit of pressure on the margins for agricultural producers. Still, momentum of increases in farmland values has been maintained even with rate increases in the past year.”
Ag bankers raised interest rates 85 basis points on operating loans and 110 basis points on real estate from the previous quarter. With the rapid increase, financing rates were above the 2015-19 average in all regions.
Increases in farmland values were the largest in states with the highest quality farmland, Ag Finance Update indicated.
High commodity prices and low interest rates helped drive farmland values in Iowa to an average of $11,411 an acre. That’s, up 17-percent from 2021, when they rose 29-percent, according to Iowa State University’s annual Land Value Survey.
“Farmers have a lot more cash on hand and supply chain issues led to a shortage of equipment. So, the money that farmers normally spend on equipment is devoted to land,” said Iowa State University professor Wendong Zhang.
Seventy percent of the professionals surveyed said land values were “too high” or “way too high,” Zhang commented.
Still, 48-percent of participants said they expected prices to be higher a year from now. About 28-percent expected lower values and 24-percent expected prices to hold steady.
The 2022 Iowa farmland value of $11,411 an acre is highest in the history of the survey, started in 1941. When adjusted for inflation, this year’s value still exceeds the 2013 value of $8,716 an acre.
Farmland values in western Missouri soared 34-percent compared to the third quarter of 2021. In northern Indiana, farmland values surged 29-percent.
According to the latest USDA report, August 6, 2022, Kansas farm real estate value for 2022 averaged $2,630 per acre. That’s up $530 per acre, 25 percent, from last year.
Kansas cropland value, according to the August 6, 2022, USDA report, increased 24 percent from 2021 to $2,950 per acre.
Dryland cropland value averaged $2,850 per acre, $600 higher than last year. Irrigated cropland value averaged $4,000 per acre, $300 above a year ago.
Pastureland, at $1,850 per acre, was $350 higher than the previous year.
Important interesting sidenote, Kansas rents paid to landlords in 2022 for cropland increased from last year.
On August 6, 2022, irrigated cropland rent averaged $143.00 per acre, $4 above last year. Dryland cropland rent averaged $61.50 per acre, $3.50 higher than a year earlier.
Pasture rented for cash averaged $21per acre, one dollar above the previous year.
+++30+++
