Last week the Federal Reserve Banks of Chicago and Kansas City released updates on farm income, farmland values and farm credit conditions starting in the fourth quarter of 2021.
Federal Reserve Bank of Chicago
David Oppedahl, senior business economist at the Chicago Fed, explained in the AgLetter that “Overall, the District has experienced very strong annual increase of 22% in the value of its agricultural land in 2021 (see table and map below). In nominal terms, the annual increase in 2011 was the last gain as large as that of 2021.
In the fourth quarter of 2021, all states in the district recorded double-digit year-over-year increases in the value of their farmland.
“The value of agricultural land in the district was up 7% in the fourth quarter of 2021 from the third quarter.
the AgLetter stated that “More than offsetting their actual declines from 2014 to 2019, District farmland values hit new high in 2021. At the end of 2021, farmland values in the district were up nearly 7% from their previous peak (in 2013) in real terms; they rose even more (around 22%) in nominal terms after almost fully recovering their previous peak (also in 2013) at the end of 2020 (see chart 2)”.
Mr. Oppedahl added that “Powered by higher revenue for plant and animal products, net farm income increased by $24 billion for the country in 2021, based on the USDA’s February forecast. This ascend in farm income provided momentum for the rapid rise district farmland values in 2021.”
And the Chicago Fed indicated that “Improving agricultural credit conditions for the district also played a significant role in the impressive gains in farmland values in 2021.”
Recall that a report from Iowa State University from late last year showed that “the average value of an acre of Iowa farmland skyrocketed 29% in 2021.”
Federal Reserve Bank of Kansas City
Francisco Scott and Ty Kreitman, writing in the Farm Credit Survey of the Kansas City Fed, noted that “Farmland values continued to rise at a rapid pace through the end of 2021.
Along with continued strength in farm incomes and credit conditions, the value of all farmland types in the Tenth District was more than 20% higher than a year ago.
“The recent strength in agricultural real estate markets has been supported by strong request, historically low interest rates and greatly improved conditions in the agricultural economy.
Last week’s update stated that “lenders reported a generally favorable outlook for agriculture in the district, but cited rising input costs as a risk for the sector. Even with the uncertainty surrounding input costs, lenders expected favorable economic conditions to support farm finance and lead to further increases in farmland values in 2022. The possibility of lower farm income and higher interest rates in the economy remains a risk for farmland markets. Despite the risks, the agricultural sector seems well positioned for the coming yearsupported by strong balance sheets, high agricultural commodity prices and strong increases in farmland values.
Scott and Kreitman noted that “the strength of the agricultural economy continued to support farm incomes and borrower liquidity through the end of 2021. Profit opportunities remained strong alongside high commodity prices, and both farm income and borrower liquidity increased from a year ago at a similar pace to recent quarters (Chart 1).
the Farm Credit Survey noted that “in conjunction with historically low interest rates and strong agricultural credit conditions, farmland values have risen rapidly, according to respondents. Farm real estate values are up more than 20% from a year ago, the largest increase among recent quarters (Chart 4, left panel). Strong growth has pushed the average value of rainfed cropland to recording levels even after adjusting for inflation (Chart 4, right panel).
Regarding cash rents, the Kansas City Fed pointed out that “Cash rents have continued to rise alongside farmland values, but at a slower pace. Cash rents for all land types increased by about 10%a faster pace than in previous quarters but of approximately half the rise in farmland values (Chart 5, left panel). After adjusting for inflation, cash rents on rainfed cropland remained at around 15% below the historic high reached around 2012 (Graph 5, right panel).
the Survey added that “the sharp increase in the value of agricultural land has been coherent in all states and land types in the district. The value of rainfed cropland and irrigated cropland increased significantly in Nebraska and Kansasrespectively (Table 1).
“Oklahomahowever, faced the slowest increase in values across all land types.