CHICAGO, Ill. – Midwest farmland values surged 18 percent from a year ago for the Seventh Federal Reserve District, which includes all of Iowa and Michigan, the upper two-thirds of Illinois and Indiana, and the lower half of Wisconsin, according to the Federal Reserve Bank of Chicago.

On Nov. 16, the bank released updates regarding farm income, farmland values and agricultural credit conditions from the third quarter of 2021.

“Assisted by low interest rates, government support, and higher-than-normal farm incomes, the district saw a year-over-year gain of 18 percent in its agricultural land values in the third quarter of 2021,” said David Oppedahl, the bank’s senior business economist.

“This was the largest year-over-year increase in the district’s farmland values in nine and a half years,” he added. “Iowa led the way with a year-over-year jump in farmland values of 28 percent; other district states also saw double-digit, year-over-year growth in farmland values.”

After being adjusted for inflation with the Personal Consumption Expenditures Price Index (a measure of the prices that people living in the United States, or those buying on their behalf, pay for goods and services), he said district farmland values were still up 13 percent in the third quarter of 2021 relative to a year ago.

“In nominal terms (real income of individuals or nations after adjusting for inflation), the district’s agricultural land values in the third quarter of 2021 were 6 percent higher than in the second quarter,” he said.

According to the 151 bankers who responded to the Oct.1 survey, farmland values for what Oppedahl referred to as good farmland in the district overall were 6 percent higher in the third quarter of 2021 than in the second quarter.

“Most survey respondents (68 percent) anticipated the district’s farmland values to go up again during the fourth quarter of 2021, while the rest anticipated stable district farmland values in the final quarter of this year (none anticipated them to go down),” he said.

Thirty-two percent of respondents anticipated district farmland values to be stable in the fourth quarter.

In addition, a large majority of respondents expected both farmers and non-farm investors to have stronger rather than weaker demand to acquire farmland this fall and winter, compared with a year earlier. Respondents also overwhelmingly anticipated a rise in the volume of farmland transfers during this fall and winter relative to a year ago.

Although drought threatened a substantial portion of the Midwest over the summer, he said district-wide corn and soybean yields in 2021 rebounded strongly from 2020, and looked to set new highs, according to the USDA data.

“In October, the USDA forecast the five district states’ harvest of corn for grain in 2021 to increase by 7 percent from 2020 and be the largest since 2016,” he said. “Similarly, the USDA forecast the soybean harvest for the five district states in 2021 to rise by 11 percent from 2020 and set a record. The price of corn in September 2021 was 14 percent lower than in August, but still 60 percent higher than a year ago.”

Likewise, he said, the price of soybeans in September of this year was 11 percent lower than in August, but 32 percent higher than a year earlier.

“In October, the USDA released price forecasts for the 2021-22 crop year of $5.45 per bushel for corn, and $12.35 per bushel for soybeans,” he added. “When calculated using these price estimates, the projected revenues from the 2021 corn and soybean harvests for district states would increase from 2020 by 29 percent and 27 percent, respectively.”

Moreover, he said agricultural credit conditions for the district showed improvement yet again in the third quarter of 2021.

“For the July-through-September period of 2021, repayment rates on non-real estate farm loans were higher than a year earlier,” he said. “The index of loan repayment rates was 143 in the third quarter of 2021, as 45 percent of responding bankers observed higher rates of loan repayment than a year ago, and just 2 percent observed lower rates.”

He said renewals and extensions of non-real estate agricultural loans were also lower in the third quarter of 2021 than a year ago, with only 1 percent of the responding bankers reporting more of them, and 28 percent reporting fewer.

“Collateral requirements for loans in the third quarter of 2021 were essentially unchanged from the same quarter of last year, as 3 percent of the respondents reported that their banks required more collateral, and 1 percent reported that their banks required less,” he said.

He noted one of the respondents of the survey, an Iowa banker, said 2021 had “given most farm customers their best returns to income in years,” but added that “concern will shift next year to higher input costs and high land prices.”