Midwest Farmland Values Gain as Record Crop Prices Boost Demand

Farmland values in five Midwest states rose 13 percent in the third quarter from a year earlier as record corn and soybean prices spurred demand from farmers and investors, the Federal Reserve Bank of Chicago said.

Higher commodity prices and crop insurance more than offset losses from the worst drought in 56 years, boosting farm income and demand for land in Iowa, Illinois, Indiana, Michigan and Wisconsin, the Fed said today in a report. Land values rose 5 percent from the second quarter, and 36 percent of the 223 bankers surveyed forecast higher values in the fourth quarter. Just 1 percent of respondents expected lower prices.

“The drought does not seem to have derailed bankers’ anticipation of further upward movement in farmland values,” David B. Oppedahl, a business economist at the Federal Reserve Bank of Chicago, said in the report. “Survey results indicated that the impetus for higher farmland values actually strengthened during the third quarter of 2012.”

The drought in the U.S., the world’s biggest grain and oilseed exporter, sent corn and soybean prices to records earlier this year and wheat to a four-year high. Incomes for crop farmers were forecast to rise in the next six months, according to 48 percent of survey respondents, while 72 percent of bankers said earnings will fall for hog and cattle producers.

Farmland values in Iowa, the biggest producer of corn and soybeans, rose 18 percent from a year earlier, according to Fed data. Illinois gained 15 percent, Indiana rose 11 percent, Wisconsin increased 8 percent, and Michigan advanced 7 percent. More than half of the bankers said farmers will seek to buy more land in the next six months, and 31 percent forecast improved demand from investors.

Demand Undiminished

The drought hasn’t slowed farmland demand or reduced agricultural income, said Loyd Brown, the president of Hertz Farm Management Inc. in Nevada, Iowa, which manages more than 500,000 acres in nine states. Rain in August and September boosted yields more than expected, while high crop-insurance payments preserved farm income, he said.

“Many farmers are going to have their best year they have ever had,” Brown said in a telephone interview yesterday. “There’s been an acceleration in sales, and there’s still a lot of firepower looking to buy land.”

An index of demand for non-real-estate loans in the district fell during the quarter compared with a year earlier, even as interest rates shrank to a record, the bank said in the report. Repayment rates on farm loans, loan renewals and extensions improved, and loan volume was expected to increase in the fourth quarter, the survey showed. Responding bankers predicted forced sales or liquidations of farm assets among financially-stress farmers in the region to edge down in the next three to six months.

The average interest rate on real-estate loans on Oct. 1 was 4.86 percent, according to the Fed. About 7 percent of bankers surveyed required higher collateral to qualify for loans, while less collateral was required by 2 percent.

To contact the reporter on this story: Jeff Wilson in Chicago at jwilson29@bloomberg.net

To contact the editor responsible for this story: Steve Stroth at sstroth@bloomberg.net

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