Iowa farmland values increased 27% from April 2011 to April 2012, but the rise from January of this year to April was "short of the torrid pace" of 2011. That's what the latest quarterly survey from the Federal Reserve Bank of Chicago shows.
"The trend toward higher farmland values could ease in the second quarter of 2012, according to the respondents in our survey," says David Oppedahl, an economist with the Chicago Fed. The survey results released in mid-May show nearly two-thirds of the respondents expect farmland values to stabilize. The Chicago Fed's report is based on a survey of bankers in the Seventh Federal Reserve District, made up of Iowa, Illinois, Wisconsin, Indiana and Michigan.
Survey respondents noted some softening of corn prices in recent weeks as one reason why land prices might stabilize. Iowa farmers realized a record $15 billion in cash from corn sales from their 2011 crop. "It's still early in the 2012 growing season. We don't know what kind of weather we'll have this summer," says Oppedahl. "Bad weather can change everything rather quickly."
Iowa's gain in farmland value January through April 2012 was only 4%
The Chicago Fed's survey doesn't give a dollar average figure for a farmland price. It just gives a percent increase or decrease.
Iowa's April-to-April land value in the Chicago Fed survey was up 27% compared to the year before through April. That's higher than the 19% average increase for the entire Chicago Federal Reserve District. But Iowa's gain from January through April 2012 of 4% lagged behind all other district states except for Indiana's 3% gain. Illinois and Wisconsin showed 8% gains in the first quarter of 2012 and Michigan was up 5%.
The Chicago Fed's report notes prices for milk and hogs were down in the first quarter of 2012 compared to a year earlier. That could weaken slightly the demand conditions in Iowa, the nation's leading hog producing state, says Oppedahl. The survey reported cash trends in Iowa for farmland were up 20% from 2011, and up 17% district wide. In Iowa over half of the cropland (about 55%) is cash rented.
Reduced corn prices this year would be felt more strongly in 2013
Because of forward selling and hedging, the impact of any reduction in corn prices this year would only start to be felt this year—they would be more pronounced in 2013 when good hedges aren't available and when forward contracting opportunities aren't as lucrative as they have been the past two years.
The boom in farmland values was ignited by corn prices which doubled from mid-2010 through 2011. In recent weeks corn prices have eased $1 or so per bushel for both old crop and also for the December futures contract that reflects prices for this year's crop.
USDA projected last week that because of a large increase in U.S. planted acres of corn this year and an expected huge crop this fall, as well as increased corn and feedgrain production in other parts of the world, corn surpluses in the U.S. would return to more normal levels approaching 2 billion bushels as a potential carryout figure at the end of August 2013. The surpluses of U.S. corn have been around 750 million bushels since the last half of 2010.
Based on anticipated bigger corn crop, USDA lowers its price projection
For that reason, USDA is currently projecting corn prices could drop to as low as $4.20 per bushel for this fall's harvest, almost $2 per bushel lower than the average price for the 2011 corn crop. Deere & Company on May 16 also lowered its estimate for corn prices for the 2012 crop. The company lowered it from $5.30 per bushel issued in March to $4.80 per bushel as the current estimate.
The Iowa State University annual farmland value survey released last December, which covers November to November, put Iowa's average land value at a record $6,708 per acre, up 32.5% from November 2010 to November 2011.