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What is Driving the Surge in US Farmland Values?

Updated: Mar 16

Credit Challenges for US Farms

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Farmland

In the intricate fabric of global economies, American cities emerge as the vibrant cores of The latest report from the Federal Reserve Bank of Chicago highlights a remarkable trend in the agricultural sector, with farmland values in the Midwest crop belt reaching an all-time high in the fourth quarter despite challenging credit conditions. While interest rates remained elevated, the value of farmland in the region, spanning Iowa, Illinois, Indiana, Michigan, and Wisconsin, surged by 6% compared to the previous year.


This increase, although notable, reflects a slower growth rate compared to previous years. In 2022, farmland values saw a staggering 12% rise, followed by a 22% gain in 2021. The Seventh Federal Reserve District witnessed a 6% annual increase in agricultural land values in 2023, contributing to this new peak, although the yearly gain reduced to a single digit.


Insights from the Federal Reserve Bank's survey of 129 agricultural bankers revealed a nuanced picture. While values for "good" farmland in the District rose by 2% in the fourth quarter of 2023, respondents expressed caution about the future. Only 6% anticipated a rise in farmland values in the first quarter of 2024, with 17% predicting a decline and the majority (77%) expecting stability.


The report also underscores tightening credit conditions, with funds available for lending decreasing for the third consecutive quarter. Economists David Oppedahl and Elizabeth Kepner pointed to concerns raised by an Iowa banker, who warned of "tough times ahead" for farmers.


Adding weight to these concerns, a recent forecast from the US Department of Agriculture paints a grim picture for farmers, projecting a significant decline in incomes—the most substantial in nearly two decades. Factors such as sliding crop prices and a decrease in US dominance in agricultural exports contribute to this bleak outlook.


Moreover, the trend of billionaires investing in hard assets like farmland adds another layer of complexity to the situation. The acquisition of farmland by wealthy individuals underscores the attractiveness of agricultural assets as a long-term investment despite the challenges faced by farmers.


While farmland values continue to soar to record highs, underlying challenges such as tightening credit conditions and economic uncertainties loom large, posing significant implications for the agricultural sector and rural communities.


Farm Ownership

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Family Farm

In addition to the factors mentioned, the landscape of US agriculture is further influenced by demographic shifts and changes in farm ownership structures. The ongoing trend of urbanization and population growth in the United States has placed pressure on traditional family farms. As the population increases, particularly in urban areas, there is greater demand for housing, infrastructure, and commercial developments, leading to the conversion of agricultural land into non-agricultural uses.


Simultaneously, there has been a steady decline in the number of family-owned farms across the country. Consolidation within the agricultural sector has resulted in larger-scale farming operations, often managed by corporate entities or large-scale investors. This trend has been driven by various factors, including economies of scale, technological advancements, and challenges associated with succession planning for family-owned farms.


According to data from the United States Department of Agriculture (USDA), the number of family farms has been declining steadily over the years, while the average size of farms has been increasing. This shift has significant implications for rural communities, as family farms have historically been important contributors to local economies and cultural heritage.

Furthermore, the concentration of agricultural land ownership in fewer hands raises concerns about the equitable distribution of resources and access to land for aspiring farmers, particularly those from disadvantaged backgrounds. It also has implications for agricultural policy, market dynamics, and rural development strategies.


In this context, the soaring value of farmland amidst tighter credit conditions not only reflects market dynamics but also underscores broader structural changes within the agricultural sector. As the demographic and ownership landscapes continue to evolve, policymakers, stakeholders, and communities must navigate these complexities to ensure the long-term sustainability and resilience of US agriculture.


Farmland Values in 2023

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Farm Equiptment

Throughout 2023, the Seventh District observed a steady rise of 6 percent in its farmland values, as detailed in the table and map below. Notably, Illinois and Indiana experienced single-digit increases, resulting in lower annual changes compared to 2022. Iowa, on the other hand, encountered a slight single-digit decline in farmland values, marking its first decrease in the past five years. Conversely, Wisconsin witnessed a substantial double-digit surge in agricultural land values for the year 2023. Wisconsin bankers attributed this rise to persistent nonfarm pressures, particularly from solar projects, alongside limited availability of farmland for sale. Furthermore, the District's farmland values saw a 2 percent increase from the third quarter to the fourth quarter of 2023.



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Map

The map illustrates quarterly and year-over-year percentage changes in farmland values across various geographical areas within the Seventh Federal Reserve District. Some areas lacked sufficient survey responses, resulting in unavailable data regarding changes in farmland values.


When adjusted for inflation by the Personal Consumption Expenditures Price Index (PCEPI), the District's farmland values experienced a modest annual increase of 2.2 percent in 2023. This represents the smallest real increase observed since 2019 (refer to chart 1). Despite this, farmland values in the District reached a new peak in 2023, surpassing their 2013 peak by 15 percent in real terms and 44 percent in nominal terms (see chart 2).


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Chart 1

Annual Real Change in Seventh District Farmland Values

Chart 1 depicts the annual real percent change in Seventh District farmland values from 1973 to 2023. While the years from 2014 to 2019 saw somewhat negative changes, the trend shifted positively from 2020 to 2023. During this period, annual gains were nearly 5 percent, around 17 percent, approximately 5 percent, and slightly over 2 percent for the years 2020, 2021, 2022, and 2023, respectively.


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Chart 2

Sources: Authors' calculations based on data from Federal Reserve Bank of Chicago surveys of farmland values; and U.S. Bureau of Economic Analysis, Personal Consumption Expenditures Price Index (PCEPI), from Haver Analytics.

Indexes of Seventh District Farmland Values


Chart 2 illustrates the index of Seventh District farmland values in nominal terms and adjusted by the Personal Consumption Expenditures Price Index from 1973 to 2023. Both indexes continued to rise in 2023 following an upward trend in the previous three years, contrasting with the downward trend observed between 2013 and 2019.

Sources: Authors' calculations based on data from Federal Reserve Bank of Chicago surveys of farmland values; and U.S. Bureau of Economic Analysis, Personal Consumption Expenditures Price Index (PCEPI), from Haver Analytics.


The widespread drought in the District contributed to uncertainty surrounding corn and soybean production in 2023. However, contrary to expectations, the lack of moisture did not significantly reduce yields as seen during the 2012 drought. According to calculations using U.S. Department of Agriculture (USDA) data, corn yields in the District experienced a slight decrease of 0.3 percent from 2022, while soybean yields slightly increased by 0.4 percent. Harvested corn acres rose by 3 percent in 2023 compared to 2022, whereas harvested soybean acres decreased by 4 percent.


Corn production across District states increased by 3 percent, reaching 6.78 million bushels, the highest level since 2016. In contrast, soybean production fell by almost 4 percent to 1.75 million bushels. National corn stocks increased by 12 percent from 2022, while soybean stocks decreased by nearly 1 percent (refer to final table). The rise in corn stocks led to a decline in USDA projected prices for the 2023–24 crop year, with corn prices falling by 27 percent from the previous crop year to $4.80 per bushel. Soybean prices were projected to be $12.65 per bushel, an 11 percent decrease, partly due to higher global soybean production projections. Based on these prices, estimated revenues for the District states' 2023 harvest would be down by 24 percent for corn and 14 percent for soybeans compared to 2022 levels.


Livestock product prices also experienced a decline by the end of 2023. In December 2023, the index of prices for livestock and associated products dropped by 14 percent from 2022. Although cattle prices rose by 11 percent from the previous year, hog and milk prices decreased by 15 percent and 16 percent, respectively (refer to final table). Egg prices plummeted by 58 percent from the preceding year.


According to the USDA's February assessment for 2023, net farm income for the nation was projected to decline by 16 percent ($30 billion) from 2022, attributed partly to decreasing farm cash receipts and government payments, alongside rising material expenses. Real farm income, while lower than its peak in 2022, remained significantly above 2020 levels and slightly below 2021 levels. An Illinois respondent noted, "Ultimately, 2023 will end up as a profitable year, but because of the drought concerns during the summer, the amount of pre-priced grain was lower than it should have been." Despite the lesser-than-anticipated impact of the drought on yields, selling harvested crops at lower prices negatively affected farm financial positions.


The agricultural landscape of the Seventh Federal Reserve District in 2023 witnessed both challenges and opportunities. Despite concerns over a widespread drought, the resilience of farmers and advancements in agricultural practices mitigated significant yield losses, ensuring a relatively stable production of corn and soybeans.


However, fluctuations in commodity prices, influenced by factors such as global production projections and domestic stock levels, posed financial challenges for farmers, leading to a decline in projected revenues and net farm income at the national level. The appreciation of farmland values, albeit at a slower pace compared to previous years, reflected the enduring strength of the agricultural sector. Moreover, the increasing pressures from nonfarm activities, notably solar projects, underscored the importance of balancing agricultural development with other land uses. As the sector navigates through these dynamics, fostering innovation, resilience, and sustainable practices will be crucial for ensuring its long-term viability. Despite the uncertainties and fluctuations inherent in agriculture, the resilience and adaptability exhibited by stakeholders in the Seventh District continue to underpin its vital role in both regional economies and global food security.


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