Farmland values in the central Corn Belt remained stable in the first quarter of 2019, according to the Federal Reserve Bank of Chicago. While average farmland values remained unchanged from a year earlier, There was a 1%t increase in “good” farmland values from the fourth quarter of 2018 to the first quarter of 2019, according to the banks' quarterly survey of agricultural bankers. The bank serves the northern two-thirds of Illinois and Indiana, Iowa, eastern Wisconsin and the lower peninsula of Michigan.
The bank reports the amount of farmland for sale in the three- to six-month period ending with March 2019 was slightly higher than in the same period ending with March 2018, even as the demand to purchase agricultural land was a bit lower. Also, the number of farms sold and the amount of acreage sold were roughly the same during the winter and early spring of 2019 compared with a year ago. Almost a quarter of the responding bankers expect district farmland values to decrease during the second quarter of 2019, while three-fourths of them expected agricultural land values to be steady. Moreover, cash rental rates for district farmland eased for the sixth consecutive year in 2019.
Indiana and Iowa saw year-over-year decreases in farmland values, while Illinois and Wisconsin saw no changes. Somewhat surprisingly, Wisconsin did not have a year-over-year decrease in farmland values, despite being the lone state that experienced a quarterly decline. After being adjusted for inflation with the Personal Consumption Expenditures Price Index (PCEPI), district agricultural land values were down (by 1%) on a year-over-year basis for the 19th straight quarter in the first quarter of 2019.
The stability of district farmland values persisted even as the demand for agricultural land softened from a year ago and the supply on the market grew modestly, the bank notes. "As an Indiana banker noted, “There are people in rural communities who have really strong balance sheets and are in an offensive position, with the capability of buying land.” That said, there was some downward pressure on farmland markets in the three- to six-month period ending with March 2019 relative to the same period ending with March 2018, given that 7% of the survey respondents reported higher demand to purchase farmland and 28% percent reported lower demand," the bank notes. "Also, there was an uptick in the amount of agricultural land for sale during the most recent winter and early spring relative to a year ago, as 28% of the responding bankers reported more farmland was up for sale in their areas and 22% reported less. The number of farms and the amount of acreage sold were roughly the same in the winter and early spring relative to a year earlier," the bank states. "Notwithstanding several comments by responding bankers that investor interest in farmland was robust, survey participants generally indicated that the mix of agricultural acres purchased by farmers and investors was about the same in the three- to six-month period ending with March 2019 as in the corresponding period ending with March 2018," the bank says.
Another indicator of weakening markets for farmland was a 3% decrease in cash rental rates for district agricultural ground from 2018 to 2019, the bank states. For 2019, average annual cash rents to lease farmland were down 2% in Illinois, 3% in Indiana, 4% in Iowa, 2% in Michigan, and 4% in Wisconsin. After being adjusted for inflation with the PCEPI, district cash rental rates slipped 5% from 2018. This was the sixth straight year of declining real cash rents—the longest such downturn since 1981 (when the survey started to track cash rents).
Annual percentage change in Seventh District farmland cash rental rates adjusted by PCEPI
Even though the current streak of decreasing real cash rental rates is the longest one on record in the survey, the district’s index of inflation-adjusted cash rental rates fell by more in percentage terms during the 1980s, the bank observes. "The index of real cash rents was reduced by nearly 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 2019, the index of real cash rents dropped 36% below its level in 2013, reaching its lowest level since 2007; the index of real farmland values dropped only 10% from its 2013 peak (and was last lower in 2012). As of March 2019, the corresponding six-year dips in real corn and soybean prices were even larger — at 53% and 47%, respectively — according to calculations using data from the U.S. Department of Agriculture (USDA). With the current earnings potential of farmland (reflected by cash rents and crop prices) declining relatively more than agricultural land values, farmland purchasers seem to desire more strongly either long-term income prospects or other characteristics over the near-term returns of farm ownership, the bank observes.
Indexes of Seventh District farmland adjusted by PCEPI