The average value of farmland in several Midwestern and Western states grew 25 percent over the past year in the biggest one-year jump in at least three decades.
The increase reported Tuesday by the Federal Reserve Bank of Kansas City, Mo., reflects current low interest rates and a healthy farm economy. But the higher land values will make farming more expensive.
"It makes it difficult for early farmers or farmers who want to expand their operation," Nebraska Farm Bureau President Keith Olsen said. "The other big concern is that as ag values go up, property taxes are going up."
Land values increased despite widespread flooding and drought that many farmers in the region struggled with this year. Several hundred thousand acres of farmland along the Missouri River spent much of the summer under water because of flooding, and southern Plains states have been battling severe drought.
But as long as the weather in their area cooperated, farmers did well. Corn prices hit a record high of $7.99 a bushel in June because thin supplies prompted fears of a shortage. Wheat prices also have been high, and some farmers have used the extra income to buy land.
"If you had the moisture to raise a crop, it's going to be a good year," said Ron Meyer, who farms near Superior in southeast Nebraska.
But Meyer said the higher land prices will definitely make it harder for young people to get into farming.
The increase in land values is the biggest since the bank began issuing its quarterly report in 1980. The third-quarter report is based on a survey of 243 banks in Kansas, Nebraska, Oklahoma, Wyoming, Colorado, northern New Mexico and western Missouri.
Nebraska led the region with a roughly 41 percent increase in the value of its farmland in the past year. The gains were smallest in drought-stricken Oklahoma, where the value of non-irrigated farmland grew about 11 percent. Oklahoma ranchland values grew about 5 percent.
Jason Henderson, the Federal Reserve economist in Omaha who oversees the survey, said land values in Oklahoma are being driven more by energy markets than by farm income because of the oil and other minerals being mined there.
Oklahoma State University agricultural economics professor Wade Brorsen said he's heard that a number of farmland buyers in the state have been able to pay cash for land at recent sales.
"In a few areas, you had oil money," he said.
But Brorsen said he believes the biggest factors driving up farmland values are the low interest rates and relatively strong cattle and crop prices.
Henderson said he believes land values will likely continue to increase in the region next year, but the rate of increase will depend on what happens with crop prices and farmers' production costs between now and next spring's planting season.
A sharp fall in land values could hurt many farmers, especially if they borrowed too much against their land, Olsen said. But many farmers, especially if they lived through the farm credit crisis of the 1980s, have kept their debt levels low.
Federal Reserve survey: http://www.kansascityfed.org/Agcrsurv/agcrmain.htm