Farmland values grew 12% in 2010, the second largest increase in the last 30 years, according to the Chicago Federal Reserve Bank of Chicago. In the fourth quarter of 2010, farmland values rose 6%, the largest rise in any quarter since 1977.
The annual index of nominal farmland values set a record high, but adjusted for inflation, the index is a tad below its peak of 1979. 2010 was one of the best years for agriculture in decades, except in the dairy industry due to weak milk prices.
Iowa farmland values led the pack, with an 18% return in 2010, followed by Indiana and Illinois, which had a 12% and 11% annual return, respectively. Wisconsin and Michigan only appreciated 7% and 4%, primarily due to the diversity of agriculture in the regions.
Credit conditions also improved in the district as strong farm income allowed farmers to pay down debt. Demand for non-real-estate farm loans in the fourth quarter was stable, but renewals and extensions dropped from the previous year.
The Fed expects farmland values to continue to rise in the first quarter of 2011 due to expectations for higher land purchases and improvements by farmers.
The Chicago Fed continued the momentum from the Kansas City Fed, reporting double digit farmland gains. The Minneapolis Fed is next and we expect similar results.