Federal Reserve: Q3 Farmland Values Surge

Farmland values surged in the third quarter according to Federal Reserve surveys of agricultural credit conditions, said a study by Federal Reserve Economists Nathan Kauffman and Ty Kreitman, in a release.

The value of non-irrigated cropland increased by 12% or more in all participating districts, averaging about 15%, the economists said.  The rapid increase also was consistent across most states, with annual increases of more than 20% in some areas.

 

INTEREST RATES AT HISTORIC LOWS

 

Supporting farm real estate markets, interest rates on farm loans remained at historic lows, and strong farm finances drove further improvement in agricultural credit conditions, the pair said.

Despite persistent concerns about increases in input costs, agricultural lenders expected farm income and credit conditions to remain strong through the end of the year alongside elevated commodity prices, the release said.  The accompanying surge in farmland values bolstered farm balance sheets.

Alongside prospects for further strength in commodity markets, the outlook for farm finances and agricultural land values through the end of 2021 remained strong, they said.

Gains in cropland values from a year ago were the highest in any quarter since 2013 in all regions and offset reductions in land values that may have occurred in recent years, the economists said.

 

VALUE SURGE CONSISTENT

 

The surge in farm real estate values was consistent across nearly all states, the Federal Reserve report said.  The value of non-irrigated cropland increased nearly 10% or more from a year ago in all states with available data except North Dakota.

Values grew by more than 20% in Iowa, Minnesota and South Dakota and from 9% to 20% in all other states except North Dakota, the economists said.

Providing support to agricultural real estate markets, interest rates on farm loans remained historically low, they said.  The average fixed rate charged on loans for farmland declined slightly from last quarter and remained at or near an all-time low in all districts.

On average, interest rates were about 100 basis points below the average from 2015 to 2019, which reduced financing costs and contributed to higher demand for farmland, the report said.  Agricultural credit conditions also continued to improve alongside strong farmland markets.

Farm loan repayment rates increased from a year ago at a pace similar to the prior quarter in all districts, the pair said.  Elevated commodity prices and robust government support boosted farm finances in 2021, leading to improved credit conditions and contributing to the recent strength in farm real estate values.

 

CATTLE, BEEF RECAP

 

The USDA reported formula and contract base prices for live FOB steers and heifers last week ranged from $131.81 to $135.42 per cwt, compared with the previous week’s range of $129.52 to $132.00.  FOB dressed steers and heifers went for $205.64 to $209.84 per cwt, versus $197.79 to $203.85.

The USDA choice cutout Tuesday was down $0.61 per cwt at $278.64, while select was down $1.06 at $262.67.  The choice/select spread widened to $15.97 from $15.52 with 144 loads of fabricated product and 49 loads of trimmings and grinds sold into the spot market.

The USDA reported Tuesday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.35 to $1.45 a bushel over the Dec futures and for southwest Kansas were unchanged at $0.40 over Dec, which settled at $5.80 1/2 a bushel, up $0.03 3/4.

The CME Feeder Cattle Index for the seven days ended Monday was $157.43 per cwt up $1.14.  This compares with Tuesday’s Jan contract settlement of $164.37 per cwt, up $2.67.