Wisconsin Ag Connection - Wisconsin Farmland Values Rose Another 16-Percent in 2012

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Wisconsin Farmland Values Rose Another 16-Percent in 2012
Wisconsin Ag Connection - 02/18/2013

Local bankers throughout the Midwest are indicating that 2012 was another huge year for increased-farmland property values, but the thrust wasn't as evident as in 2011. According to the latest survey of agricultural lenders in the Seventh Federal Reserve District, farmland values between October through December 2012 were up another seven percent from the three months previous. For the year as a whole, values were 16-percent higher in the district--which is the third-largest annual gain since the late 1970s

In the most recent questionnaire of 212 rural bankers, survey respondents said agricultural credit conditions were stronger in the fourth quarter of 2012 than in the preceding fourth quarter, although non-real-estate loan demand was weaker.

Wisconsin ag property increased by 11 percent from last year--which is the smallest increase in the five-state district--and went up six percent since the previous quarter. In 2011, the Badger State's annual increase was over 22-percent. The survey also notes that Iowa values were the highest in 2012 at 20-percent over last year and nine percent more than the third quarter. Illinois, Indiana and Michigan also saw double-digit increases from 2011.

When analyzing the numbers, the Fed's report shows that farmland values experienced a cumulative rise of 52 percent over the three-year period of 2010-12. That matches the fastest gain of the 1970s boom of 1974-76.

Despite the recent drought conditions, Reserve Economist David Oppedahl attributes the continued value increases to a very healthy farm economy.

"Funds availability and farm loan repayment rates were up in the October through December period of 2012 compared with the same period of 2011, and rates of loan renewals and extensions were down," Oppedahl said. "At the end of the fourth quarter of 2012, agricultural interest rates were at their lowest in the history of the district's survey. Moreover, the loan-to-deposit ratios for reporting banks averaged 67.2 percent--the second-lowest level since 1996."

He notes that almost 20 percent of the reporting bankers said they tightened credit standards for agricultural loans in recent months.

Meanwhile, the bankers are speculating that since the drought did help boost the price of crops this past year, a rebound in production in 2013 could trigger price declines, which could slow down the trent of higher farmland purchases.

"Although the drought persisted in portions of the district, its severity had diminished in much of the Midwest following the harvest, giving more hope for a rebound in crop yields," Oppedahl notes.

He says recovery from the drought will remain a key factor in 2013, as the movements of drought-influenced crop prices will affect both crop farmers and livestock producers.

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