Fed: Iowa farmland values may have "plateaued"

Farmland values in Iowa and other parts of the Corn Belt have likely "plateaued," the Federal Reserve Bank said Thursday after acreage prices posted a modest increase during the second quarter of 2014.

The Federal Reserve's Chicago branch said the average dollar value of "good" farmland across Iowa was up 1 percent for the April 1 to July 1 quarter. During the last year, land prices in the Hawkeye State fell 1 percent. The drop indicates the torrid growth of the past few years may be coming to an end as commodity prices have fallen. But, so far, prices have have managed to withstand the sharp correction forecast by some economists.

"Given the downward trends in crop prices, the year-over-year and quarterly increases in (Seventh Federal Reserve) District farmland values for the second quarter of 2014 may turn out to have been blips," said David Oppedahl, a business economist at the Federal Reserve Bank of Chicago. "Indeed, farmland values may have already plateaued."

The survey, compiled with input from 230 agricultural bankers, found only 2 percent of responding bankers expected farmland values to increase in the third quarter of 2014, while 30 percent anticipated a decline.

Similar to what happened in Iowa, land prices across states covered by the Federal Reserve Bank of Chicago have posted sharp gains over the last few years, but posted mixed results during the second quarter. Wisconsin and Illinois rose 6 percent and 3 percent, respectively, but Indiana fell 1 percent. Michigan did not have a sufficient response to determine its change in the value of good farm land. Overall, the region overseen by the Chicago Fed was up 2 percent for the quarter and 3 percent from July 2013 to July 2014.

In recent years, low interest rates and record-high grain prices have provided farmers with cash they have used to buy new equipment and land. After years of torrid growth, a spate of recent land value reports from Farm Credit Services of America and other groups have shown further increases, albeit it at a much smaller clip.

A major reason is corn and soybean prices have posted sharp declines as farmers are on track to produce record amounts of each crop this year. Corn futures for December delivery are at $3.75 a bushel on the Chicago Board of Trade, down from an average of $6.89 two years ago; while November soybeans are averaging $10.56 a bushel compared with $14.40.

The Agriculture Department said earlier this week that the country's farmers will harvest 14.03 billion bushels of corn and 3.82 billion bushels of soybeans. In Iowa, the country's largest corn and second-biggest soybean producer, farmers are forecast to produce 2.44 billion bushels of corn and 502 million bushels of soybeans.

In February, USDA said farm income will plunge 27 percent to $95.8 billion in 2014 as farmers feel the impact of lower corn and soybean prices and reduced government payments. Still, the data released by the government showed the farm economy will remain historically strong, with 2014 net farm income the seventh highest since 1973 after adjusting for inflation, and $8 billion higher than the average of the previous 10 years.

Other states

Land prices across states covered by the Federal Reserve Bank of Chicago have posted sharp gains over the last few years, but posted mixed results during the second quarter.

REGION: Up 2 percent

IOWA: Up 1 percent

WISCONSIN: Up 6 percent

ILLINOIS: Up 3 percent

INDIANA: Down 1 percent

MICHIGAN: Did not have sufficient response to determine change