Land values sharply higher into 2022

Farmland values in the Upper Midwest have reached or surpassed their highest levels in nearly a decade during the past 12 months, after several years of uncertainty from 2014 to 2020.
Average sales for high quality farm land in many portions of the Midwest and Northern Plains states are up by 20 to 40 percent in the past year. Land values in 2021 increased at the highest year-over-year percentage rate since 2013, which followed the high farm income years from 2011 through 2013.
Many areas of the Upper Midwest experienced solid yields combined with the highest crop prices in several years to boost final 2021 farm income, which also contributed to sharply higher land values.
Land values have also been enhanced by continued relatively low long-term interest rates and very strong buyer interest in 2021 and early 2022.
There was also a limited supply of land being offered for sale during the first half of 2021; however, sales volume increased later in the year after land prices began to increase and due to concern over potential changes in tax policy by the federal government.
Southern Minnesota land values, similar to those in Iowa, were much higher in 2021 due to much higher commodity prices and average to above average crop yields in many areas. In recent months, there have been some isolated land sales across southern Minnesota that have rivaled the highest land values per acre ever recorded.
Even with the higher land values, there has continued to be a gap between the average land price for high quality and well-drained farm land compared to low quality and poorly drained land.
One of the best sources of farm real estate values in Minnesota is the University of Minnesota’s “Land Economics” website at landeconomics.umn.edu. This site accesses a database of various land values reported by county assessors throughout the state – adjusted annually based on actual land sales in a given county.
Data released in late 2021 by the Federal Reserve districts across the U.S showed similar trends in average land values in the Upper Midwest, compared to a year earlier. The highest 12-month percentage increases at the end of 2021 were Iowa at 28 percent, Minnesota at 26 percent, and South Dakota at 23 percent.
Recent data from private sources shows that land values have continued to increase during the first three months of 2022. Some areas are showing an increase of 7 to 10 percent or more in land values since harvest was completed in the fall of 2021.
There have been numerous land sales at $10,000 to $14,000 per acre in Iowa and southern Minnesota, as well as other portions of the Midwest, with even higher isolated land sale values in portions of Iowa and Illinois. Buyer interest in purchasing land has remained strong by both farm operators and investors.
Currently, most signs point toward continued increases in land values in the next 12 months.
However, there are some lingering “caution flags” that could potentially reverse this optimistic trend and revert to more downward pressure on land values. These potential challenges include:
•return to lower crop prices and lower profitability in crop and livestock farming.
•the Russian invasion of Ukraine, as well as for other global political unrest.
•several increases in long-term interest rates by the Federal Reserve Bank in the next year.
•changes in federal policies, such as estate taxes, capital gains taxes, or 1031-exchange policies.
•reduced interest to purchase farm land or a large increase in the amount of land being offered for sale.
•lack of confidence in the land market by farmers, investors and ag lenders.
The U.S. Federal Reserve recently increased the prime interest rate by .25 percent, up to a revised prime rate of 3.50 percent. This was the first increase in the prime rate in about three years.
Many economists are predicting that there could be as many as five to seven more increases in the prime interest rate in the next 12 months.
The longer-term farm land real estate interest rates, which have already increased by nearly one percent in the past year, are usually based more on interest rate changes in the bond market for 10-year U.S. Treasury notes.  
The future trend in crop prices, the level of 2022 crop yields, and profitability in livestock production, along with the potential increases in interest rates and possible changes in government policy, will likely determine if there is further strength in land values later this year.