Chicago Federal Reserve: Land prices surge 18% in last year

New data from the Federal Reserve Bank of Chicago confirms what we all know about the recent prices paid for farmland in the central U.S.: it's continuing to surge.

The group's November newsletter shares that farmland prices have rocketed 18% in the Third Quarter (July – October) 2021.

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Low interest rates, government payments to farmers and higher than normal farm incomes are the reasons farmland prices are high, according to the Federal Reserve Bank, which covers the Seventh District, including the states listed below.

The report shows the percent change in dollar value of "good" farmland from October 1, 2020 to October 2021:

• Illinois: +13%
• Indiana: +15%
• Iowa:+28%
• Wisconsin: +10%
• Seventh District Aggregated: +18%
• Michigan did not have sufficient data.

Auction busines is booming

Evidence is showing up in recent farmland auctions.

• An 80-acre tract of Tipton County, Indiana farmland sold November 17 for $11,438 per acre.
• The day before, a 70-acre tract of Hamilton County, Indiana sold for $16,583 per acre. Both sales were handled by Halderman Real Estate and Farm Management.
• On November 13, a 152 acre tract in Hardin County, Iowa, sold for $9,200 acre, while a week prior, 155 acres near Latimer in Franklin County Iowa sold for $12,300 per acre. Mid Iowa Real Estate Auctions and Appraisals had those sales.

The prices paid for farmland may seem wild, but in addition to the factors listed above – interest, government payments and income – the most important factor is simple, says Troy Louwagie, broker for Hertz Ag Services of Nevada, Iowa.

"There is a lot more cash, and farmland is driven by cash," Louwagie says. "I think people were hoarding cash through COVID-19. A year ago, people had cash but weren't optimistic due to factors like COVID, the Derecho in Iowa.

"Now, with great yields coming in, higher commodity prices and government payments, people are optimistic."

How long can the land boom last? As long as there is cash in the checking account, Louwagie he says.

"Every neighborhood has three to five guys who can write a check for farmland. But, we are seeing more inventory coming and so far we've been able to absorb that inventory," he says. "It depends on how much ground is sold in a given area."

Cody Skinner, realtor with Iowa Land Company, agrees. Pent-up demand and strong commodity prices are fueling demand by farmers; meanwhile, more investors are also interested in buying farmland, he adds.

"In the last year we've seen more investors becoming buyers than anytime before. People are pulling money out of the stock market to invest in something tangible like farmland," he says. "Where we used to see 80% local buyers, anymore it's 50/50, farmers and investors."

Will too much supply of available land soften prices? Skinner remains bullish.

"I don't think so, unless 1,500 to 2,000 acres sells within a 10-mile radius at one time," he says.

In southern Minnesota, auctioneer Dan Pike, owner of the Dan Pike Auction Company, points out that concern about the impact of President Biden's tax plan on estate taxes is one impetus behind more land coming to market this fall.

Since the beginning of November, the Jackson, Minnesota auctioneer has hosted seven land auctions, with strong prices at each sale.