Minnesota farmland prices are rising at near record rates, according to the most recent estimate from the Federal Reserve Bank of Minneapolis.
Federal Reserve officials say the higher prices reflect a strong agricultural economy. Some are concerned that land prices could be the next real estate bubble, but so far there's no sign of a downturn.
The Fed survey of bankers in its five-state area shows that farmers are bidding land prices to never-before-seen heights, in some cases over $10,000 an acre.
In Minnesota, land prices at the end of September were about 28 percent higher than a year earlier, Federal Reserve officials say. Other Midwest states are seeing similar increases. South Dakota and Iowa are up about 30 percent and Nebraska nearly 40 percent.
Joe Mahon, an economist for the Federal Reserve Bank of Minneapolis, said bankers that responded to the survey attribute the sharp increases to high farm profits.
"What's driving the higher land prices is simply that what you can produce with the land is more valuable," Mahon said. "The commodity prices are still very strong, if you look at corn, wheat and soybean prices. And also livestock prices as well."
Those high prices are driving farm profits into record territory. The U.S. Agriculture Department estimates 2011 net cash income for farmers will rise nearly 18.9 percent, topping $100 billion nationwide for the first time in history.
Farmers are putting much of that money into land. For Minnesota, the 28 percent increase in land prices means the total value of all the cropland in the state has increased by about $17 billion dollars in just the last 12 months.
The strong agricultural economics are giving farmers both the financial wherewithal and the confidence to spend more on their operations, whether it's for machinery, buildings, or more land.
"I've never seen anything move as fast, and jump to these astronomical levels as I have in the last 36 months," auctioneer Chuck Sutton said.
Sutton has been in the business for more than three decades. A month ago, in the southwest part of the state, he auctioned off 150 acres that may have set an all-time record for Minnesota farmland. The selling price: over $12,000 an acre. Sutton said in today's land boom, the highest prices are paid by farmers who have a chance to buy land that's within a mile or so of their homes.
"This gentleman that bought that farm at $12,400 an acre, lived right across the road, so essentially he bought his front yard when he bought that property that day," Sutton said. "And with a son involved in his farming operation, this may well be one of the very few chances that they're going to get to buy land in that neighborhood."
The economic effect of the boom in farmland prices is spreading beyond buyer and seller. It's also changing local government's property tax collections.
Martin County Assessor Dan Whitman said over the last year, property taxes on farmland have accounted for more of the money the county collects.
"Agricultural land is about the only class of property that we're seeing increase right now," Whitman said. "Our residential and our commercial properties are either staying flat in value or going down a bit. So when one class of property increases in value, their share of the tax burden also increases."
Whitman estimates the share of property taxes in his county paid on farmland increased about 5 percentage points this year. He expects that share to increase even more in the future as tax bills more fully reflect the land price surge.
No one knows how high land values will go, but Mahon, the Federal Reserve economist, said the third quarter banker survey shows continued confidence in the farm sector. Lenders expect farmers to bank more profits as the year ends.