Ag bankers anticipate farmland market to remain strong

A survey of ag lenders showed nearly 62% believe farmland values will increase the next 12 months. (Photo by Catrina Rawson)

The value of farmland could remain near historical highs and possibly even increase the next 12 months, according to ag bankers.

An American Bankers Association (ABA), Farmer Mac survey of ag lenders showed eight of every 10 respondents reported farmland values increased an average of 8.3% in the past year. And 61.7% of ag bankers believe the upward trend will continue the next 12 months.

“This is an exciting time to be in agriculture and ag banking,” said Dave Coggins, executive vice president/chief banking officer for Investors Community Bank in Wisconsin, who chaired this month’s Agricultural Bankers Conference in Cincinnati.

A similar survey of ag lenders by the Chicago Federal Reserve District found the value of farmland increased a whopping 18% in the third quarter in its district, including much of Illinois.

High commodity prices and low interest rates remain key drivers. Investors are also plowing a lot of money into the market.

“Land values are up 25% to 30% in some areas,” David Kohl, ag economist/professor emeritus at Virginia Tech, told FarmWeek at the conference.

“What’s driving this? Some baby boomers like me don’t trust Wall Street and crypto currency, so we’re using existing equity to invest in farmland,” he said. “There’s another set of people anticipating green payments. Those two factors along with low interest rates are powering land values.”

And, while farm margins could get squeezed by high input costs in the year ahead, balance sheets generally remain strong at this point.

USDA forecast the debt-to-asset ratio could fall from 14.02% in 2020 to 13.64%, the first decline since 2012, while working capital is forecast to increase 13.8% from 2020 to 2021.

The ABA/ Farmer Mac survey reported a reduction in ag loan delinquencies this year. And lenders’ concerns about credit quality and ag loan deterioration eased from the top spot in 2020 to the fourth-highest concern this year.

“We’ve weathered some difficult times, and there’ll be more ahead,” said Coggins. “That’s the cyclical nature of ag.”

Nearly one-third of ag lenders surveyed project a decline in farm profitability the next 12 months.

The ag banking industry encountered a “unique set of challenges,” the past two years, ranging from a shift to more of its workforce at home amid the pandemic and the use of more electronic banking to supporting the Paycheck Protection Program, according to Rob Nichols, ABA president and CEO.

“We’re better bankers than we were before,” said Shan Hanes, president and CEO of Heartland Tri-State Bank in Kansas. “You have to embrace technology as much as your budget allows.”

Looking ahead, ag bankers are finding the balance of how to offer services both in-person and electronically as the economy rebounds.

Key priorities for ABA include maintaining a free market banking system, rebutting proposals of a government-run/secondary banking system, making sure synthetic banks are subject to the same supervision as traditional banks and helping bring the approximate 7 million Americans without bank accounts into the banking system.