Despite widespread flooding and drought throughout the Midwest, average farmland values increased 25 percent over the past year, marking the largest single-year gain in three decades.
The increase, reported this week by the Federal Reserve Bank of Kansas City, reflects current low interest rates and a healthy farm economy. But some farmers and analysts believe higher land values will make farming more expensive due to increased cash rents and higher taxes.
Nebraska led the region with a more than 40 percent increase in farmland values over the past year, while a drought-stricken Oklahoma had the smallest gain at 11 percent.
In Iowa, the nation’s top corn producing state, prices in more than 50 sales this year have exceeded $10,000 per acre.
So far, Federal Reserve administrators have been unable to find any kind of weakness in what some are calling a “farmland value bubble.” Nevertheless, there is concern a sharp drop in land values could hurt many farmers, especially those who have leveraged acreage against debt. Attempting to put some of those fears to rest, some advocacy groups are saying debt-to-equity ratios are nowhere near levels experienced during the farm crisis of the 1980s. And some market observers also point out that farmers, unlike speculators, tend to hold onto their land investments for decades.
In response to higher prices, some banks are protecting THEIR interests by establishing limits on both capital and acreage.