US Farmland Prices Are Rising With Commodity Revenues

The value of agricultural land in the Seventh Federal Reserve District rose 6% in 2020, the largest increase since 2012, according to the the Federal Reserve Bank of Chicago's latest AgLetter. The District, which comprises all of Iowa and most of Illinois, Indiana, Michigan and Wisconsin, produces over 40% of the nation’s corn, soybeans, and hogs, and is also a major dairy and egg producer. Even taking inflation into account, there was an annual increase of almost 5%, the first gain since 2013. (see chart below) 

According to a survey of 137 agricultural bankers, 58% expect farmland values to rise during the January through March period of 2021, and 42% expect them to be stable. None expect them to decline. One of the main reasons cited for the increase in farmland values last year, besides lower interest rates, is higher revenues from corn and soybean production. The USDA projected prices will rise 18% and 30% per bushel for corn and soybean, respectively, during the 2020–21 crop year. The estimated revenues from the 2020 harvest for District states is up 24% for corn and 46% for soybeans relative to 2019.

"According to the survey results, the agricultural outlook seemed to be the rosiest in years," said Chicago Fed senior business economist David Oppedahl.

farmland values
Source: Federal Reserve Bank of Chicago.

Commodities Supercycle

Optimism about commodities is the highest its been in years as prices in copper, oil, soybeans, corn etc. rise. JPMorgan says a new so-called "supercycle" of years-long gains has begun in the sector. There have been four such supercycles in the last 100 years with the last one having peaked during the global financial crisis in 2008. "It’s easy — and largely accurate — to present the 2021 commodity outlook as a V-shaped vaccine trade," said Goldman Sachs in a recent report, adding that a recovery in commodity prices "will actually be the beginning of a much longer structural bull market for commodities."

The top 3 U.S.-traded commodity ETFs by assets – the Invesco Optimum Yield Diversified Commodity Strategy No K-1 ETF (PDBC), Invesco DB Commodity Index Tracking Fund (DBC), and iShares S&P GSCI Commodity-Indexed Trust (GSG) – have all returned around 10% this year. The Teucrium Corn Fund ETF (CORN) is up 7.64% and Teucrium Soybean (SOYB) is up 4.78% year to date.