Even though farm income only saw a slight increase between the second quarters of 2012 and 2013, there continued to be a rapid rise in the value of farmland, according to a new report from the Federal Reserve Bank of St. Louis, which surveyed agricultural banks in parts of seven Midwestern states, including Missouri and Illinois.
Kevin Kliesen, business economist and research officer with the Fed in St. Louis, says there’s anecdotal reports that some of the money is coming from big, institutional, including foreign, investors.
“It’s difficult to say whether this money is here to stay or whether it’s chasing yields, or returns,” Kliesen says. “I guess we’ll know once interest rates start to go up and farm income starts to slow or decline.”
He says some investors might be looking at farmland as a long-term investment, with the potential to feed a growing world population.
The report, which surveyed 48 agricultural banks in parts of Ill., Ind., Ky., Tenn., Miss., Ark., and Mo. found:
Quality farmland prices averaged $5,672 per acre in the second quarter of 2013, up 11 percent from an average $5,111 in the first quarter of 2013 and up more than 20 percent from $4,705 per acre in the second quarter of 2012. Ranch and pastureland prices were also slightly higher in the second quarter of 2013, with District lenders reporting average prices of $2,372 per acre, up about 4 percent from $2,274 per acre in the first quarter 2013 and up close to 1 percent from $2,349 per acre the previous year.
Even though he’s heard plenty of concerns, Kliesen says it remains too soon to know if there is a looming farmland bubble.
“But when prices rise to levels to where it’s difficult to see how farmers can make that cash flow, that’s another indication that maybe things are a little out of whack,” Kliesen says.
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