A survey of Midwestern farm bankers found Wisconsin farmland value increased 10% from the same time period in 2020.
The Federal Reserve Bank of Chicago interviewed 151 bankers in their district, which includes Iowa and parts of Wisconsin, Illinois, Indiana and Michigan.
Bankers said the value of good quality farmland in the region increased 6 percent between the second and third quarters of this year. Compared to the third quarter of 2020, bankers reported that the value of land increased by 18%.
In Wisconsin, bankers polled said land values âârose 1% from the previous quarter and 10% from the same period last year.
David Oppedahl, senior business economist at the Federal Reserve Bank of Chicago, said land values ââstarted to rise last fall as the agriculture industry recovered from the initial shocks of the COVID-19 pandemic.
âOver the past year, there have been further increases in income from both government support programs as well as higher prices for many products. So this has really helped consolidate finances and provide additional income that is used, as well as a low interest rate to help support the value of farmland, âOppedahl said.
Wisconsin bankers reported a smaller increase in land values ââthan neighboring states like Iowa, where survey respondents reported 28% higher land values ââthan in 2020.
Oppedahl said the state’s agricultural industry includes a greater variety of commodities, which means the value of land is not as closely tied to corn and soybean prices. He said it also means Wisconsin hasn’t seen such a big drop in land values ââin recent years when prices have fallen.
âThe more diverse nature of agriculture in Wisconsin and the area’s attractiveness to rural life has allowed Wisconsin’s farmland to retain its value a little more,â Oppedahl said. “Wisconsin has not grown as quickly as it is already at a relatively high level compared to its historical averages.”
Mike Morris is vice president of valuation at farm lender Compeer Financial. He said the numbers reported in the Federal Reserve’s investigation might even be a conservative estimate of the demand his appraisers see in Wisconsin.
âIf you look at the pastures, even the part-time recreational farms, across the central part of the state to the southeast, there has probably been a 10 to 15 percent increase in some of those areas. So we’re definitely seeing a very big increase not just on farmland, but on all kinds of rural properties, âMorris said.
Morris said southwestern Wisconsin in particular has seen huge growth in land values, increasing 25 to 30 percent from last year. He said values ââstarted to rise around June of this year and there was still upward pressure in this market.
He called the current market a “perfect storm” of demand for rural property from farmers, those looking to hunt or participate in other recreational activities, and people looking to get out of town in reaction to the pandemic.
âPeople wanted to get out of town, find a little more secluded place, a rural area and so on. But I think the price of basic commodities was the main driver of land values,â Morris said. . “Especially if you look at the southern part of Wisconsin, through Illinois, Iowa, southern Minnesota, it was really heavily influenced by the prices of corn and soybeans.”
Morris said that one thing that surprised him about the current market is the increasing volume of properties brought to market over the past year.
He said that normally more supply would dampen stocks. But that has not happened so far.
âThe demand is so great that it keeps pushing supply out of the market if you will,â Morris said. âI think part of this is that buyers see what they think is a strong long-term commodity price base. Sellers say, ‘Yeah, I’ve never seen that kind of value. . Maybe now is the right time to go ahead and liquidate my property. And I think there is some concern about what the capital gains tax might be (in 2022). “
Like Oppedahl, Morris believes that the higher incomes of farmers as a result of government programs linked to the pandemic have also helped bolster the market’s “perfect storm”.
The Federal Reserve’s survey found that non-real estate farm loan repayment rates were higher in the third quarter compared to the same period in 2020. It is also the fourth quarter in a row that bankers have reported rates of higher reimbursement. Survey respondents also reported fewer loan renewals and extensions, another sign that farms are able to repay their loans on time.
The survey found that this is also the fifth consecutive quarter that demand for non-real estate agricultural loans has fallen compared to the previous year.
Morris said the current financial strength of the agricultural sector means demand for farmland is not expected to decline for the remainder of this year until 2022.
For farmers who are not looking to sell, this means fewer opportunities to buy land at an affordable price. But for producers who are thinking about retirement or succession planning, Morris said it could be a profitable time for them to take a step.
âThey’re going to have a strong opportunity to lease or lease this farm. There are also strong sales opportunities,â Morris said.
As of October 1, the date of the survey, 68% of bankers surveyed expected the region’s farmland prices to rise in the fourth quarter of this year. The other respondents all believed that the values ââwould remain stable.
Oppedahl said Wisconsin bankers were a bit more cautious in their forecast, with 73% expecting prices to be stable and only 27% of survey respondents expecting continued increases.
Wisconsin Public Radio, Â© Copyright 2021, Board of Regents of the University of Wisconsin System and Wisconsin Educational Communications Board.