If the depreciation bonus rules disappear at the end of 2013, farmers may be looking beyond new machinery to invest the additional dollars from high commodity prices that they booked in the past year.

U.S. Farmland Prices — 35 for 35

Farmland prices in major agricultural states including Illinois, Iowa and Nebraska rose for a 35th successive month in December, according to a report released by Creighton Univ.

An index compiled by Creighton, in which any reading above 50 indicates expansion, came in at 82.5, indicating “very brisk growth.”

Readings were particularly high in Illinois and Iowa, top two U.S. producing states for corn and soybeans, of which prices remain at historically high levels, and Kansas, the major wheat-growing state. In October, Iowa land set a state record of $21,900 per acre.

“The Federal Reserve's cheap money policy is pushing agriculture land prices higher,” says Ernie Goss, economics professor at Creighton Univ.

Prices were even rising in more livestock-oriented states where the rise in grain prices has squeezed margins. It’s expected that November cattle placements on feedlots would come in 9% below those a year before.

“In order to reduce costs, the 2012 drought and higher corn prices have forced ranchers to cut the size of their animal stocks,” Professor Goss said, pegging at 14.8% the average reduction in livestock herds.

Yet Creighton's study showed prices of land in Wyoming, a ranch-oriented state, showed an index of 80.6, up 1.4 points from the year before.

Along with the expected steady demand for new farm machinery in early 2013, the Agricultural Newsletter from the Federal Reserve Bank of Chicago is reporting the strong competition for farmland in its district is expected to continue.

This district includes the Midwest states of Illinois, Indiana, Iowa, Michigan and Wisconsin.

Iowa’s farmland values continued to lead the district, with a year-over-year increase of 18% for the third quarter of 2012. The quarterly increase in the District’s agricultural land values was 5% for the third quarter of 2012 — much higher than the 1% gain for the previous quarter.

Survey results (223 responses) indicated that the impetus for higher farmland values actually strengthened during the third quarter of 2012. Given that 36% of the survey respondents expected higher agricultural land values during the October–December period of 2012 and just 1% expected lower values, the drought does not seem to have derailed bankers’ anticipation of further upward movement in farmland values.

Moreover, the demand to acquire farmland this fall and winter was not anticipated to ebb among farmers. Given that 57% of surveyed bankers predicted increased demand for farmland among farmers over the next 3-6 months and only 5% predicted decreased demand, there should continue to be a lot of interest in available agricultural ground. Strong demand among nonfarm investors also continues, according to Federal Reserve Bank.