The prices of agricultural land in the United States have recorded the strongest increase in 2020 years in the third quarter of 6. It is all the more striking that more bankruptcies of agricultural companies are expected in the coming period. What about that, and what is the reason for the increase in the price of land?
Farmland prices in the 'Midwest' (Wisconsin, Iowa, Illinois, Indiana and Michigan) increased by as much as 2020% in the second quarter of 2. It is the strongest increase in the past 6 years. According to the Federal Reserve in Chicago, the increase is mainly due to extremely low interest rates and additional government support as a result of the coronavirus. Indiana and Wisconsin show the largest price increases: 6% and 3% respectively compared to last year. The increases of 2% in Illinois and 1% in Iowa were slightly more modest.
On the other hand, land prices show a completely different picture compared to the second quarter. Compared to that period, an unchanged trend is visible. In the state of Illinois, a decrease of 2% is even visible. A stable price trend is also expected for the fourth quarter of 2020. The expectation is that the price for grassland in 2020 will be €6.600 per hectare and the price of arable land could rise to more than €8.500 per hectare.
The rental prices are also higher. For the states in the Midwest, the average rent has now risen to €410 per hectare. It is the second highest price in the United States. The American states in the Pacific take the cake, with an average price of €627 per hectare. The lease price is the lowest in the Southern Plains: €82 per hectare. For the entire country, the average lease price is approximately €283 per hectare.
More bankruptcies expected
American bankers expect that agricultural companies will have a difficult time in the coming period. The 'Coronavirus Food Assistance Program (CFAP)' paid out €2 billion in support to agricultural companies in the aforementioned 5 states at the end of October. These 5 states have thus received 24% of the total €8,5 billion. Many agricultural entrepreneurs in the United States currently survive on this support. Bankers therefore expect that the share of forced sales or termination of companies in financial problems will increase in the next 3 to 6 months compared to last year.
This would mainly concern pig farmers, cattle farmers and dairy farmers in the United States. Agricultural bankers predict that the net cash income for American arable farmers in the coming period may well be higher than in the previous year.