LOW INTEREST RATES AND THE STRONG FARM ECONOMY SUPPORTED THE RISE IN LAND VALUE, SAID THE KANSAS CITY BANK.
By Chuck Abbott8/13/2021
Fueled by strong commodity prices and continued pandemic assistance, farmland values are skyrocketing, up by 14% in the central Midwest and by 10% in the central Plains, said the Federal Reserve banks in Chicago and Kansas City on Thursday. “Government payments have buoyed the agricultural sector,” said an Illinois farm banker surveyed by the Chicago Fed.
“Farmland values for the Seventh District climbed 14% on a year-over-year basis in the second quarter of 2021 — their largest such gain in eight years,” said the Chicago Fed in its quarterly Ag Letter. “Values are expected to rise again during the third quarter of the year.”
The Kansas City Fed said farm income had grown at a fast pace from a year ago, thanks to “a sharp turnaround in agricultural economic conditions and lasting support from government programs related to pandemic relief.” Although farmers and ranchers face higher production costs, the opportunity for profit is strong. “Despite potential headwinds, bankers indicated they expected improvements in farm income and credit conditions to continue in the months ahead.”
Low interest rates and the strong farm economy supported the rise in land value, said the Kansas City bank. “The value of all types of land throughout the district was about 10% higher than a year ago, the largest increase since 2013.”
Ag lenders in Colorado and Wyoming said drought has challenged producers this summer. A banker in Oklahoma said, “The increase in land values is making it difficult for both crop and livestock producers to afford purchasing based on the amount of return they generate from production.”
While most bankers in the Chicago Fed district were optimistic about the farm sector in the near term, some were less sanguine about the longer term, given uncertainties about the pandemic, export markets, input costs, and federal support. “High commodity prices, solid yields, and PPP loans have sharply improved farmers’ finances. However, long-term risks are of serious concern,” commented one lender.