Farm income and land values surged in the closing months of 2020, lifted by higher commodity prices and large federal payments, according to farm lenders across the Midwest and Plains. With the commodity rally expected to persist, the farm economy was in its best shape in years, said the Federal Reserve regional banks in Chicago, Kansas City and Minneapolis.
“Overall, agricultural conditions in the first quarter (January through March) of 2021 in the Kansas City Fed region were poised to remain strong for the first time since 2013,” said the Kansas City Fed in a quarterly report. The Minneapolis Fed said its survey found 60 percent of bankers “predicting further growth in farm incomes and spending.” The Chicago Fed said Midwestern farmland prices on Jan. 1 were up 6 percent from a year earlier, “the largest such gain since 2012.”
The farm sector has been in a rut since the collapse in 2014 of a seven-year boom in commodity prices. Agriculture is forecast to benefit from an economy-wide recovery from the pandemic this year. Higher market prices, particularly for corn, soybeans, cattle and hogs, are forecast by the USDA to run $20 billion above 2020s total and net farm income, a gauge of profitability, would be 20 percent above the 10-year average, despite a sharp reduction in federal subsidies. Direct federal payments were a record $46.3 billion last year.
The USDA will update its expectations during its annual Agricultural Outlook Forum on Thursday and Friday.
More than three-quarters of the bankers who took part in a Minneapolis Fed survey said farm incomes increased during the final three months of the year and 60 percent said they expected farm income would increase in the first quarter of 2021. “Expectations going into the new year were generally optimistic,” although some bankers worried the commodity rally might stumble.
A Minnesota banker said 2020 “was much better than expected. We had very good yields in our trade area, combined with better prices and government payments.”
Four out of five bankers in the Kansas City Fed survey said farm income was higher than expected in 2020, including one in five who “expected the increase to be significant.”
“Government payments provided broad support through the year and, together with recent price increases, the near-term outlook for the farm sector improved dramatically,” said the regional Fed. It was an about-face “after nearly eight years of deterioration.”
Like the Kansas City and Minneapolis banks, the Chicago Fed said farm financial conditions improved in late 2020 but it did not discuss farm income in its quarterly report. Each of the regional Feds said loan repayment rates improved and fewer borrowers needed extensions or renewals.
“For 2020, the district saw a steep annual increase of 6 percent in farmland values,” said the Chicago Fed. Indiana and Wisconsin showed even larger gains; Iowa and Michigan were slightly below the regional average.
“For the first time since the first quarter of 2011, a majority of responding bankers, 58 percent, predicted farmland values would go up in the next quarter, in this case, the first quarter of 2021,” said the Chicago Fed. “Notably, none of the survey respondents predicted farmland values to go down.”
In the Kansas City district, which covers Nebraska, Kansas, Oklahoma, Wyoming, Colorado and parts of Missouri and New Mexico, land values increased by 4 percent, compared to a year ago, “the highest average increase across all types of land in any quarter since 2014.”
Cropland values increased modestly in the Minneapolis Fed district of Minnesota, Montana, North Dakota, South Dakota and northern Wisconsin during the final months of 2020. Non-irrigated cropland was up in value by 3.6 percent.
“Ag real estate has seen an increase in value due to the influx of people from other states moving here during Covid and buying properties,” said a Montana banker.