Minding Ag's Business

Minneapolis Fed: Land Values, Cash Rents Make Largest Quarterly Jump Since the Ethanol Boom

Katie Micik Dehlinger
By  Katie Micik Dehlinger , Farm Business Editor
Cash rents increased by an average of 7.7%, according to the Federal Reserve Bank of Minneapolis. While the state breakdowns show no change in Montana and a big jump in Wisconsin, economists say it's because there are fewer respondents and therefore more volatile data in those states. (Map courtesy of Federal Reserve Bank of Minneapolis)

Agricultural bankers in Minnesota, Montana, North Dakota, South Dakota and Wisconsin see higher incomes, high loan repayment rates, higher land values and higher cash rents, according to a survey by the Federal Reserve Bank of Minneapolis.

For the first three months of 2021, ag bankers said farm incomes improved from the year before, which in turn lead to a steady increase in loan repayment rates as well as lower demand for new loans and renewals. The survey included 67 respondents, all bankers that regularly respond to the survey.

"The reasons mostly focused on the sustained increase and improvement in crop prices for the core agricultural commodities produced in our region, as well as good yields and production from 2020, leading to bountiful harvests to continue marketing," said Joe Mahon, a regional research director for the Minneapolis Fed. "And, of course, continued government aid that persisted through 2020. That's bolstered farm balance sheets during those last few difficult years."

The bank also asked what an acre of land cost and compared the responses to last year's survey to estimate the change in land values. Across the region, land values were 6.8% higher than last year.

"This is a level of increase that we haven't really seen since the early part of the last decade," Mahon said. Land prices in the district had a significant run up in the late 2000s to early 2010s during the ethanol boom, including one year when North Dakota land values increased by 30%, which lead to concerns about it becoming a bubble. In the following years, incomes leveled off and so did land values. In recent years, prices had begun to slip downward.

"We have seen other quarters recently where there have been some indications of a little bit of a recovery or upward movement back up in land prices, but this is really the most substantial jump that we've seen in quite some time," Mahon said.

Bankers also reported that cash rents increased 7.7%. "Not only do you see a significant increase in rents over the period, but, actually, rents increased more than land values," Mahon said, adding that the last time this happened was during the ethanol boom.

While the general economic outlook appears optimistic, he said he'd be remiss if he didn't mention the extreme drought across much of North Dakota and parts of South Dakota. "This is something that we're going to keep our eye on over the growing season because that could really affect how things go over this year," he said.

More broadly, the survey did get a few comments noting concern about the overall level of uncertainty in the agricultural sector right now.

"It's been a really difficult few years, and in ag, it's almost been a decade now since we saw the peak in land and crop prices, so there is concern about whether this is sustainable, or whether the price rally is susceptible to a lot of volatility like in other financial markets," Mahon said. While the government played an important part in boosting farm balance sheets in recent years, "now we're starting to see more organic growth, pardon the pun, from improved harvesting crop prices, but there's concerns about the sustainability of the rally."

For more on the topic, see Progressive Farmer Senior Editor Victoria Myers' recent story about the bullish land price outlook at https://www.dtnpf.com/…. Myers also discusses land prices in the DTN Reporter's Notebook video this week.

Katie Dehlinger can be reached at katie.dehlinger@dtn.com

Follow her on Twitter at @KatieD_DTN


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