Midwest Land Values Confirmed Higher

The Federal Reserve Bank of Chicago recently released their “AgLetter” for the 4th Quarter of 2012 (Seventh District Agricultural Newsletter).  This issue confirmed what we have seen in the countryside since last summer – land prices continue to move higher.  All the five states that encompass the 7th District (MI, IN, IL, IA, WI) showed an increase from October 1, and double-digit increases for the whole year. In fact, Iowa values were up 20% in 2012 after a 28% increase in 2011. Quite an impressive (or perhaps troubling?) feat!

The newsletter also reports credit conditions, which may be one of the best indicators of whether the ag economy and land prices are becoming over-heated. Interestingly, despite the summer drought, credit conditions in the 4th quarter of 2012 actually improved from 2011. The majority of the improvement was a result of a decrease in demand for non-real estate loans.  In addition, bank deposits had increased due to crop sales and insurance payments.  Finally, low interest rates have also undoubtedly had an impact on financial conditions with District wide operating loans averaging 5.03% and real estate loans 4.70%.

There were two other pieces of information that I found interesting in this report – 1.  Anticipated expenditures for machinery, equipment, buildings and other capital items are expected to be higher in 2013; and, 2.  The USDA is predicting net farm income to increase in 2013 from 2012 levels.  These predictions indicate continued confidence and if both hold true, then it bodes well for a stable to higher land market for the next few months.  And just when we thought that values couldn’t move any higher…

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