Farmland values up in northern Colorado; Front Range better prepared if bubble bursts
September 9, 2011
Today’s version of the gold rush – at least in some parts of the country – comes in the form of wheat fields, rows of corn and acres of soybeans.
Growing global demand for food, a lack of reliable investment options in a weak economy, high commodity prices and low interest rates have contributed to farmland values in Iowa almost doubling during the past six years. Values increased more than 50 percent in parts of Nebraska and Kansas in that time frame, and in some areas of Indiana, land is selling for three times what it would have a decade ago, according to reports by The Associated Press.
However, it’s been a little more calm closer to home.
Weld County farmers and other agriculture producers along Colorado’s Front Range have experienced recent increases in farmland values, as well, but not to the extent that has been seen in other areas of the U.S.
Tony Miller, senior vice president at First Farm Bank in Greeley, said farmland values in the Greeley area have seen increases of about 10 percent in the past five years, and Weld County Assessor Chris Woodruff said property values across the county have increased about 15 percent.
According to those who know the agriculture industry – Colorado State University professor and agriculture economist Norm Dalsted, as well as Miller – urban sprawl along the Front Range and pressure for development have driven up prices on all land in the region long before agriculture commodity prices began booming.
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Both further noted that the value of water in Colorado has also contributed to agriculture land along the Front Range being historically higher than in other parts of the country.
“Those areas where land values have really increased recently – specifically the Midwest – are areas where commodity prices drive everything,” said Miller, who has worked in the banking industry 30 years. “Where we are, land has many other purposes.
“Land values here were already high enough that they didn’t have a lot of room for increase when commodity prices started shooting through the roof.”
But the factors that have minimized farmland-value increases recently along the Front Range – the value of water in Colorado and ongoing urban development – will also likely help keep values steady in the region if the country’s farmland bubble happens to burst, Dalsted and Miller said.
Prices nationally have risen so fast in recent years that bank regulators have begun sounding some alarms regarding a potential downturn in farmland values.
Farmers are shifting more of their land to the crops with the fastest-rising prices, which could eventually cause those prices to fall – and take the value of farms with them, Dalsted said. Even if crop prices hold up, land values could fall if low interest rates disappear – although Dalsted and Miller both said the Federal Reserve has indicated that won’t happen in the near future.
“But we’re pretty well insulated here, regardless of what happens,” Dalsted said. “Even if the factors start working against the ag industry, farm values (along the Colorado Front Range) shouldn’t be terribly affected.”
Just to be on the safe side, the banking industry is watching things closely, Miller added. Miller, who works at a bank that has more than 60 percent of its loans in agriculture, said bank examiners earlier this year surveyed him on how closely the bank was watching its agriculture lending.
“They’ve got their thumb on it,” Miller said. “And so do we.”
Concern that farm prices may be inflated is serious enough that the Federal Deposit Insurance Corp. held a conference for farm lenders earlier this year, titled “Don’t Bet the Farm.”
“But really we just have to stick to smart lending,” Miller emphasized, mentioning the importance of good-sized down payments and the borrower’s repayment ability, other income-producing assets and character. “There’s always potential for a downturn when things have been as good as they’ve been for farmland values lately, but it’s not causing a panic right now. It’s just something we’ll keep a close eye on.
“And if farm values do suffer a bit, we should at least be better off here than in other areas.”