Despite widespread drought that slammed Corn Belt yields in 2012, farmland prices continue their upward trajectory, though increases in recent months appear to have backed off from the 20-percent-plus annual gains of recent years.
Midyear farmland price data from the Chicago and Kansas City Federal Reserve banks, as well as surveys by Illinois and Iowa farm manager and Realtor groups, show farmland price increases of 5 to 10% in the first half of the year, substantially below the pace of recent years.
“The increases have slowed, which in my mind is good,” says Lee Vermeer, vice president for real estate operations for Farmers National, the largest seller of farm real estate in the U.S. “You cannot sustain annual 20 to 30% increases. That is too much, too fast. Prices are staying strong, up 5% to 10% this year.”
“The amount of farmland for sale is up. Maybe that is why the increase is lower than what we have seen in recent years,” adds Don McCabe, of Soy Capital Ag Services, Kankakee, Ill., who chairs the Illinois Society of Professional Farm Managers land value survey project.
Short-term, long-term trends
The Chicago Fed survey of eastern Corn Belt states showed that the value of good farmland increased 1% from the first to second quarters of 2012, the smallest quarterly increase in two years. The Kansas City Fed survey, which covers the western Corn Belt, showed that values rose less than 3% in the second quarter, roughly half the rate of the first quarter.
Meanwhile, the Illinois farm manager survey showed that farmland values increased 5% during the first half of 2012, less than double-digit increases for the period seen in recent years. The similar Iowa survey showed an average 7.7% gain for the six months ending in September, also down from double-digit increases in recent six-month surveys.
Although farmland prices appear to have cooled down so far this year, a recent USDA report showed that farmland value increases continued to gain steam from 2011 to 2012. That’s especially true in the western Corn Belt, where values climbed 24 to 35% for the 12 months ending in June, compared to gains of less than 20% in the rest of the Corn Belt.
Sales volume up
If Farmers National business is any indication, Corn Belt farmland sales volume could set a record in 2012. “This year we will do close to 200 auctions from September through the end of the year,” compared to a more typical 150 to 200 total for a good year, Vermeer says. “This is just off the charts. We think we will be up about 40% on numbers, acreage and sales value for the year.
“People are thinking maybe it is time to take advantage of strong values and avoid higher capital gains taxes in 2013,” he says. Capital gains rates could climb from the current 15% to 20 to 25%, depending on income levels and the outcome of congressional negotiations. “That is the motivator right now,” Vermeer notes.
In 2013, land sales volume likely will revert to recent normal levels, with strong demand for scarce top-quality farmland continuing to drive prices higher, he says.