U.S. farmland prices in the third quarter surged to the highest levels.
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Farmland prices hit record highs in the plains, where wheat and cattle dominate production, and jumped 25 percent in the Midwest Corn Belt, where bumper grain crops and recovering livestock markets put more money in farmers' wallets and enticed buyers to bid up for the fertile ground, according to two Federal Reserve bank surveys issued this week.
The farmland price surge has picked up pace even as major crop prices fall from peaks earlier this year. Outside investor enthusiasm is starting to cool as prices rise, fueling fear that the farmland value bubble may be about to burst. But many experts say the tell-tale signs of an unsustainable boom are lacking. Unlike the 1980s, buyers are paying cash, not relying on credit, and farmers are paying down their debt loads. Demand for U.S. grains by China and other countries shows no sign of subsiding as the world's population tops 7 billion and is still climbing. And growing demand for biofuel, which uses about 40 percent of the U.S. corn supply, remain strong supportive factors, experts say.
Link to the AGLetter Report by Federal Reserve Bank of Chicago
Indeed, strong farmland prices are a rare bright spot for the U.S. economy. Grain farmers are retiring debt and building equity, moves that buttress farm banks and lenders.
Farmland Values UP 25 Percent during 2010
Cropland values in the Plains states rose more than 25 percent over the past year to a record high while ranchland values increased 14 percent, the Federal Reserve Bank of Kansas City said in its quarterly survey of 243 banks in the region. It was the fastest rise in cropland values in the survey's history.
Nebraska posted the strongest gains with irrigated and nonirrigated land values rising approximately 40 percent above year-ago levels, the Kansas City Fed said of the Plains states. Oklahoma, mired in one of its worst droughts ever, saw a gain of just over 10 percent, however.
Meanwhile, the price of farmland in the Midwest Corn Belt rose 25 percent in the third quarter, the biggest year-on-year jump in more than three decades, a survey by the Chicago Federal Reserve Bank showed.
The top U.S. corn-growing state of Iowa is seeing eye-popping prices, according to land brokers.
The Chicago Fed also said that farm credit conditions continued to improve and interest rates on farm loans fell below the prior quarter's record lows.
Link to Federal Reserve Bank of Kansas City Report
"Farm credit conditions generally held steady across all district states in the third quarter," the Kansas City Fed said. "Bankers reported strong agricultural loan portfolios even with varied farm income levels. The loan repayment index was little changed from the second quarter and remained well above year-ago levels," it added.