The drought that savaged Midwest corn and soybeans and slashed yields contributed to less rapid increases in farmland values during the third quarter, according to the Federal Reserve Bank of Chicago.
The value of an average acre of Iowa farmland jumped 18 percent from Oct. 1, 2011, through the same date this year. That represented a decline from a 24 percent increase in Iowa farmland values in the second quarter.
Bankers responding to a survey by the Federal Reserve said an average acre of good Iowa farmland rose 6 percent in dollar value from July 1 through Oct. 1 of this year. Across the five-state Seventh Federal Reserve District, farmland values rose an average 13 percent on a year-over-year basis and 5 percent in the third quarter.
The value of an average acre of good farmland in east-central Iowa rose 16 percent year-over-year and 6 percent in the third quarter. In northeast Iowa, the value of an average acre of the same quality farmland increased 19 percent year-over-year and 9 percent in the most recent quarter.
North Central Iowa continued to lead the state in farmland value appreciation, with a 24 percent year-over-year increase and a 5 percent advance in the third quarter. Western Iowa recorded the second-highest increase in farmland value appreciation with a 23 percent year-over-year increase and a 6 percent advance in the most recent quarter.
With 36 percent of the bankers anticipating higher farmland values in the current quarter and only 1 percent expecting declining values, David Oppedahl, business economist with the Federal Reserve Bank of Chicago, said the drought does not seem to have derailed bankers’ expectations of further upward movement.
“The demand to acquire farmland this fall and winter was not anticipated to ebb, particularly among farmers,” Oppedahl said. “Given that 57 percent of surveyed bankers predicted increased demand for farmland among farmers over the next three to six months and only 5 percent predicted decreased demand, there should continue to be a lot of interest in available agricultural ground.
“The high level of interest in farmland should also persist on account of the sustained strong demand among nonfarm investors. Thirty-one percent of the survey respondents forecast greater demand to buy farmland among nonfarm investors over the next 3 to 6 months, while 17 percent forecast lesser demand.”
The bankers believe the drought more likely will affect the net income of livestock producers than crop farmers, Oppedahl added.
“Crop farmers were actually forecast to experience higher levels of net cash earnings this fall and winter relative to the previous fall and winter,” Oppedahl said. “Dairy, cattle and hog producers were forecast to have lower levels.”
Because of higher corn and soybean prices this fall, in addition to payouts from crop insurance to cover lost output, 48 percent of survey respondents said they expected net cash earnings from crops to rise over the next 3 to 6 months, he added. About half of that — 24 percent — predicted these earnings would decline.
“October corn prices climbed 21 percent from last year, and soybean prices rose 20 percent from last year,” he noted. “As a result, feed costs have jumped up, squeezing dairy, cattle and hog farmers.
“For cattle and hog operations, 72 percent of the responding bankers expected lower earnings for the fall and winter relative to the previous fall and winter, while 6 percent anticipated higher earnings.”