Last week the Federal Reserve Bank of Chicago released its latest land values survey for its district. The survey of bankers shows Iowa farmland values rose by 13% in the year ending October 1. The rise was stimulated by increased corn and soybean prices, according to the bankers surveyed.
The survey shows that Iowa farmland values rose by 6% in the period from July to October, as corn prices jumped from $3.50 per bushel to more than $5 per bushel and soybeans climbed from $9 per bushel up to $13 per bushel.
The Chicago Fed's survey doesn't put a dollar amount on land values. It just reports a percentage rise, according to what the bankers in the survey say. In September 2010, the Iowa Realtors Land Institute released its survey which showed the value of Iowa farmland had risen 8.5% from the previous September to a statewide average of $4,518 per acre.
Is the current run-up in land values going to lead to a crash?
The all-time high record statewide average price for Iowa farmland is an inflation-adjusted average of $5,711 in 1979, according to data compiled by Iowa State University, which runs an annual survey. The average price fell by more than two-thirds in the following decade, contributing to Iowa's worst farm recession since the 1930s. A number of people are wondering if the latest run-up is leading to a possible crash.
Thomas Hoenig, president of the Federal Reserve Bank of Chicago, said last week: "I see the value of farmland going up and people looking to use lots of liquidity, looking for opportunities to invest their money in farmland. I see prices are rising above what the productive capacity of that land can support." However, U.S. Secretary of Agriculture Tom Vilsack last week pointed out that a significant cushion between debt and asset values should also keep rising farmland prices from turning into bubble and bursting.
The Chicago Fed's latest land value survey shows that the majority of the 227 bankers surveyed in Iowa, Illinois, Indiana, Michigan and Wisconsin say they expect farmland prices to continue to rise this winter. "The survey in ag land values and the anticipation of higher demand for farmland have been fueled in large part by projected increases in farm income," says David Oppedahl, economist for the Chicago Fed.
Credit conditions stronger this fall, loan repayments have improved
The increase in land values this year comes after what the Fed referred to as a lull in land prices in 2009, when corn and soybean prices cooled from record levels a year earlier. At one point, farmland values in 2009 were running about 10% behind their levels of 2008.
The Chicago Fed's recent report says credit conditions in its five-state district are stronger this fall and loan repayment rates improved in July through September. Corn and soybean demand has been boosted by a projected 9% drop in the corn harvest for 2010, according to the latest USDA estimate. Wet growing conditions in Iowa this summer and record demand for soybean exports, particularly from China, have boosted corn and soybean prices, notes Oppedahl.
On the Chicago Board of Trade late last week, December 2010 corn futures were at around $5.40 per bushel. The January 2011 contract for soybean delivery was around $12.40 per bushel.