There are not many surprises in the world today. That farmland values in the Corn Belt have jumped 22% over the past year is certainly no surprise either.
The Seventh Federal Reserve District’s February report says the jump, from January 2021 to January 2022, is the biggest jump in the past decade for what its survey respondents consider “good” ground. The Seventh Federal Reserve includes Iowa, Illinois, Michigan, Indiana and Wisconsin.
“It’s a huge gain. Biggest since 2013,” said David Oppedahl, senior economist at the Federal Reserve Bank of Chicago, in a video summarizing the February report.
This matches what Jeffrey Obrecht sees.
Known as “The Dirt Dealer” and based in Iowa Falls, Iowa, Obrecht estimates land prices for good to excellent farmland have risen 25 to 30 percent in the past year.
“I’ve been in this industry for 41 years and it’s as strong as I’ve ever seen it,” says Obrecht. “Normally, we sell 35 farms a year. In 2021, we sold 76 of them.”
Additionally, more than half of the 147 farm bankers who responded to the survey say they expect farmland values to rise from January to March this year.
“We have 12 auctions booked by April 15,” says Obrecht. “They just keep coming. People want to take advantage of the market.
According to the Fed report, here are the percentage changes in the dollar value of good farmland, from January 1, 2021 to January 1, 2022:
In the Chicago Fed report, Oppedahl noted that adjusting for inflation, farmland values rose 17%. That’s a good hedge against inflation and could be one of the reasons more non-farm buyers are bidding on farmland, Obrecht says.
“In a normal year, 80% of the farms I sell are to neighboring landowners and farmers, and 20% are investors or 1031 Exchange,” he says. “Now it’s about 60% farmers and adjoining landowners, and 40% investors and 1031 Exchange.”
Oppedahl writes in the report that corn and soybean revenues are up due to increased production and higher crop prices at harvest. Corn yields in the district increased 9.4% to a record 198 bushels per acre. Soybean yield increased 8.0% to a record 61 bushels per acre. Additionally, farmers in the five states received about $1.5 billion in coronavirus food assistance program funds in 2021, boosting farm incomes.
This led to improved agricultural credit conditions in the Seventh District, according to the Fed report. The share of agricultural loans in the district considered to have “major” or “severe” repayment problems was 2.1% during the fourth quarter of 2021 – the lowest since 2012.
“Agricultural lenders are seeing a decline in demand for their products from agricultural producers as these funds have flowed into their sector. At the same time, they have fewer problem loans and fewer defaults,” Oppedahl said in the video.
For 2022, the outlook looks good for beef cattle and dairy cattle. Rising cash rents and production costs will likely squeeze margins in the crop business, Oppedahl said.