U.S. Farmland Values Up 20% in First Quarter
By Ian Berry, Market Watch, May 13, 2011
U.S. farmland values continued to climb in the first quarter, with the price of cropland in the heart of the Great Plains rising 20% in the first quarter, the Federal Reserve Bank of Kansas City said Friday.
The gain in cropland values versus a year ago was led by increases in Nebraska and Kansas, where nonirrigated land values jumped 24%, the Fed said. The bank's district also includes Oklahoma, Colorado, Wyoming and parts of New Mexico and Missouri.
Rising farmland prices nationwide have followed a broad boom in the agricultural economy, prompted by soaring grain prices. Prices for corn, wheat and soybeans have all risen sharply since last summer due to strong demand and disappointing crops around the world. That has given farmers more money to spend on farm equipment and land, while also fueling concern about a farmland bubble.
Ranchland values were up 11% from the prior year, driven by strong profits for livestock operators as well as a boom in energy exploration, which lifted land values in Oklahoma and the mountain states.
The biggest concern among bankers in the district was in Oklahoma, where a drought is hurting the wheat crop. That could hurt farmer revenues and loan repayments rates, the Fed said.
The Fed said most bankers in the district's survey expect farmland values to stabilize during the next three months. Overall, farm credit conditions in the district were stable in the quarter, with strong loan repayment rates and few loan renewals or extensions, the Fed said.
Agricultural lenders who argue there is no farmland bubble say the rising values are being driven by farmers themselves, not speculators, and point to relatively low loan-to-asset ratios. The Fed said that most bankers in the survey expect farm incomes to remain "at elevated levels" and added that demand for loans has been low as farmers pay for fertilizer, fuel and land with cash.
Critics of the Federal Reserve's monetary stimulus policy, which has included historically low interest rates and a bond-buying program, say it has inflated commodity prices and with them farmland values.
Kansas City Federal Reserve Bank President Thomas Hoenig has said that as the Fed begins to boost interest rates, U.S. farmland values could drop by a third.