U.S. Plains farmland values firmed up at end-2009

CHICAGO Fri Feb 12, 2010 1:39pm EST

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CHICAGO Feb 12 (Reuters) - Farmland values in the U.S. central Plains rose 2 percent in the fourth quarter of 2009 as crop prices climbed while ranchland values fell with livestock markets, the Federal Reserve Bank of Kansas City said Friday.

The Fed's tenth district is a leading U.S. producer of cattle and wheat, corn and other top row crops. It stretches across Colorado, Kansas, Nebraska, Oklahoma, Wyoming and parts of New Mexico and Missouri. So land values, the main collateral for most farm loans, are widely watched as an economic gauge.

"More district bankers reported stronger farm incomes due to a harvest rise in crop prices and above-average yields. Stronger crop prices at the end of the year underpinned a rise in both nonirrigated and and irrigated cropland values during the quarter, pushing farmland values above year-ago levels," the Fed said in its quarterly survey of regional bankers.

"In contrast, anemic profit opportunities in the livestock sector placed downward pressure on ranchland values. Ranchland values slipped below year-ago levels during the quarter as contractions in the livestock sector dampened demand for pasture ground," it said.

The Fed estimated the value of nonirrigated crop land rose 2.3 percent from a year earlier, with irrigated up 1.4 percent. But ranchland values fell 2.2 percent, the Fed said.

"We saw the rebound in commodity prices and that was lifting up farmland value. At the same time we saw improvements in farm credit conditions -- higher loan repayment rates, lower extensions and renewals, and bankers were expecting increased capital spending," Jason Henderson, vice president with the Kansas City Fed told Reuters.

"Some components of the livestock sector are still going to be losing some money in the first and second quarters. But I think by the end of the year the livestock sector will be posting some profits," Henderson said. "I think the worst is behind us in terms of the farm sector right now. It looks like 2010 will be a much better year."

U.S. net farm income fell 35 percent to $56 billion in 2009 from a record high in 2008 as grain prices soared. The U.S. Agriculture Department on Thursday forecast 2010 farm income at $63 billion, up 12 percent.

Fewer farmers were selling farmland in the Plains late last year, with the limited supply contributing to stronger values, the Fed survey said. Slower sales reflected cooling demand from the housing and recreation industries.

District bankers noted higher loan repayment rates and fewer loan renewals and extensions. "Collateral requirements remained steady but elevated," the Fed said. "Several contacts reported that farmers increased their use of vendor credit for the purchase of crop inputs and grain production equipment."

During the fourth quarter, the loan repayment index rose for the first time in over a year, the Fed said. Farm interest rates remained historically low with real estate loans at 6.7 percent. (Reporting by Christine Stebbins; Editing by David Gregorio)

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