The value of “good” agricultural land in the central Corn Belt edged up 1% in the first quarter of 2020 from a year ago, according to a survey ag bankers conducted by the Federal Reserve Bank of Chicago. Overall, there was no change in farmland values from the fourth quarter of 2019 to the first quarter of 2020, the bank notes.
After adjusting for inflation with the Personal Consumption Expenditures Price Index (PCEPI), district agricultural land values moved down on a year-over-year basis for the 23rd consecutive quarter in the first quarter of 2020. However, this decrease was the smallest since 2017, notes David Oppedahl, who conducts the quarterly survey.
The survey responses cover farm sector activity in the entire first quarter of 2020, most of which occurred before the proclamation that Covid-19 represented a national emergency in the U.S., he notes. The bank serves the northern two-thirds of Illinois and Indiana, all of Iowa, lower Michigan and southeastern Wisconsin.
In addition, the bank notes annual cash rental rates for district farmland eased for the seventh consecutive year in 2020.
The amount of farmland for sale in the three- to six-month period ending with March 2020 was roughly equal to that in the same period ending with March 2019, the bank reports. “Yet, the number of farms sold and the amount of acreage sold were somewhat lower during the winter and early spring of 2020 compared with a year earlier, as demand to purchase agricultural land seemed to ebb a bit,” reports Oppedahl. Just over half of the responding bankers expected farmland values to be stable during the second quarter of 2020, while the rest expected agricultural land values to decrease, he notes.
Cash rental rates decreased 2% for district agricultural ground from 2019 to 2020, according to the survey. For 2020, average annual cash rents for farmland were down 3% in Illinois, 3% in Iowa and 4% in Wisconsin. Rents were unchanged in Indiana. There were not enough survey responses from Michigan to report a numerical change for that state.
Annual Percent Change in Cash Rents Adjusted for Inflation
After being adjusted for inflation with the PCEPI, district cash rental rates dipped 4% from 2019. This was the seventh straight year of declining cash rents (in both nominal and real terms) — extending the longest such downturn since 1981 (when the survey started to track cash rents), Oppedahl notes.
Even though the current streak of decreasing real cash rental rates is the longest one on record in the survey, the index of inflation-adjusted cash rental rates fell by more in percentage terms during the 1980s. The index of real cash rents was reduced by almost 50% from 1982 to 1987. In nominal and real terms, both the index of farmland cash rental rates and the index of agricultural land values peaked in 2013. As of 2020, the index of real cash rents had fallen 39% below its level in 2013, reaching its lowest level since 2007; the index of real farmland values had fallen only 11% from its 2013 peak, he observes.
Farmland Values & Cash Rents Adjusted for Inflation