Monday, January 23, 2012

Fed Reaffirms ABA: Increasing Farmland Prices Driven By Cash Purchases, Not Debt

A recent report from the Federal Reserve Bank of Kansas City assessed the rise in farmland prices, finding that cash purchases are driving land values higher, as farm debt levels have remained relatively stable.

The report found that farmers are using cash proceeds from high commodity prices to purchase new land, saying, “farmers have yet to use debt to pay for investments in land, equipment, and machinery on the scale of past farm booms.”

The Fed’s findings confirm testimony by Matt Williams on behalf of ABA to the House Committee on Agriculture. The testimony was delivered in April 2011, nearly a year prior to the Fed’s report.

Williams stated, “While it is clear in some areas of the country farm land prices have escalated, there is no evidence that this is being fueled by credit. Demand for credit to finance these new land acquisitions has been relatively flat.”

The average farm real estate value has risen 116% since 2000 according to the USDA, while farm real estate debt has increased 55%. Land purchased with cash is driving the appreciating values, as growth in farm real estate debt has been modest compared to the increase in land prices.

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