U.S. farmland prices hit record highs on crop demand

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U.S. farmland prices surged to record highs in the Plains and accelerated in the Corn Belt in the third quarter, powered by bumper grain crops and recovering livestock prices, according to two Federal Reserve bank surveys issued on Tuesday.

Farmland prices are a bright spot for the U.S. economy, with grain farmers retiring debt and building equity that has buttressed farm banks and lenders like the Farm Credit System. The gains have been built on a booming biofuels industry and the U.S. position as the world's top food and grain exporter.

In the Plains states, cropland values 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.

Meanwhile, the price of farmland in the Midwest Corn Belt rose 25 percent in the third quarter, the fastest year-on-year pace in more than three decades, a survey by the Chicago Federal Reserve Bank showed.

``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.

``Record gains in the northern Plains were fueled by another bumper crop this harvest season that raised farm income expectations despite the recent slide in crop prices,'' it said. ''Furthermore, a quarter of survey respondents felt that cropland values had yet to peak.''

The story was the same in the Midwest, which includes Illinois, Iowa, Indiana, Michigan and Wisconsin. Prices were expected to continue to rise this quarter, according to the survey of 216 bankers conducted in October.

Prices of ``good'' farmland alone in the Chicago Fed region rose 7 percent from the prior quarter, the survey showed. That increase matches the one-quarter record set in 1977, it said.

The Chicago Fed district includes three of the top five production states for corn and soybeans, while the Kansas City bank's district includes Kansas, Nebraska and Oklahoma which are top wheat and cattle producers.

Both regions are prime producers of corn for ethanol production, along with sorghum, hogs and other farm products.

The Kansas City Fed said the gains in cropland values in the quarter were the highest in survey history, eclipsing the highs seen in 2008.

But the gains were uneven. The value of nonirrigated farmland in Nebraska, for example, was up 38.3 percent compared to a year ago, while gains were 20.2 percent in Kansas and 10.6 percent in drought-hit Oklahoma.

In the southern Plains, weaker farm income limited farmland value gains. Severe drought struck Oklahoma and areas of Kansas, Missouri and Colorado, stressing crops and drying out pastures. Reduced yields cut farm incomes and drove an increase in crop insurance claims.

But powered by the boom in ethanol -- which now consumes almost 40 percent of the U.S. corn crop -- farm incomes have soared and continue to improve balance sheets on grain farms. Bankers were also encouraged by gains in livestock demand.

``Livestock prices remained higher than last year, supported by strong demand. Cattle and hog exports climbed during the third quarter and domestic consumption remained strong throughout the grilling season,'' the Kansas City Fed said.

``Recent declines in crop prices reduced feeding costs and improved profit margins. Survey contacts reported that herd liquidations in drought areas provided a temporary boost to farm income, and tight supplies may support stronger livestock prices going forward,'' it added.

``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.

The Chicago Fed also said that farm credit conditions continued to improve. Interest rates on farm loans fell below the prior quarter's record lows, its survey showed. (Reporting by Christine Stebbins; additional reporting by Ann Saphir; editing by Jim Marshall)


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