Average Price of Nebraska’s Non-Irrigated Cropland is Up 69 Percent in Two Years

Annual price increases 3rd Quarter 2012

The above map showing third quarter 2012 price appreciation (from the prior year) of non-irrigated farmland was released in a new report from the Federal Reserve Bank of Kansas City.

From the report:

Surging farmland values strengthened farm balance sheets in 2012.

In 2011, farmland values soared nationwide, fueled by stronger gains in the Corn Belt and in the Northern Plains. Federal Reserve surveys indicated additional gains in 2012. For example, non-irrigated cropland values rose by more than 30 percent from year-ago levels in Nebraska and in the Dakotas during the third quarter. Irrigated cropland experienced similar gains with relatively strong appreciation in ranchland as well. Booming farm real estate prices boosted farm assets almost 5 percent in 2012, and farm real estate now constitutes more than 85 percent of total assets, compared with 75 percent on average during the previous four decades.

Despite the wealth benefits of rising farmland values, the sharp run-up in real estate prices is raising questions about the sustainability of current price levels. In recent years, farmland prices have accelerated faster than cash rental rates. As a result, land value-to-rent ratios, which are similar to price-to-earnings ratios for stocks, have soared far higher than historical norms. A return to historical averages will emerge from either lower land values or higher cash rents.

Soaring farmland values have reduced farm leverage ratios and boosted farm wealth. USDA projected the deleveraging trend in U.S. agriculture to persist, with the farm debt-to-equity ratio falling 11.7 percent in 2012, and a similar decline in debt-to-assets. Rising farm assets, primarily land values, outpaced a moderate rise in farm debt, boosting farm equity by 6.8 percent.

Now let’s look back to the data from a year ago.

The following is the third quarter chart from 2011 for non-irrigated land:

Annual price increases 3rd Quarter 2011

Next, is a chart showing the total price increases of non-irrigated cropland from the past two years as reported by the Federal Reserve Bank of Kansas City.

2-Year Total of State cropland price increases using data from the FRBKC

In conclusion, recent cropland price appreciation is driven by a number of federal policies, many of which are included in the Farm Bill.

Some of the policies worth mentioning include quantitative easing, a lack of real assets to invest in, low interest rates, high farm commodity prices, the corn ethanol mandate, demand for soybeans for biodiesel, the crop insurance program, and direct payments to farmers.

One concern is that with our aging farmer, making an entry into the farming business is difficult at this high level of farmland prices and rental rates. Another, is that policy can change rather quickly.

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