US Plains farmland values up as income, demand rise
* U.S. Plains farmland values rise last four quarters
* Strongest annual gains since 2009
CHICAGO, Nov 12 (Reuters) - U.S. Plains farmland values increased in the third quarter due to generally rising farm incomes and robust demand for land, the Federal Reserve Bank of Kansas City said on Friday.
"A summer rally in crop prices continued through the fall harvest as global and domestic grain supplies were lower than expected. Higher crop prices boosted farm incomes, supporting strong annual gains in cropland values," the KC Fed said in its quarterly survey of 243 bankers across the region.
The Fed's tenth district stretches across Colorado, Kansas, Nebraska, Oklahoma, Wyoming and parts of New Mexico and Missouri -- a big producer of wheat, corn and beef cattle.
Land values, the main collateral for farm loans are widely watched as an economic gauge of the health of U.S. farm economy. The KC Fed survey tracks banker reports and transactions on irrigated, nonirrigated and ranchland values.
"For the last four quarters we have seen consecutive growth across all of them," KC Fed economist Brian Briggeman said in an interview.
The value of irrigated and nonirrigated cropland rose 9.6 and 6.4 percent, respectively. The biggest gains were seen in the crop producing states of Nebraska and Kansas.
Ranchland values also rose, up 4.3 percent, as profits in the livestock sector continued to rise. (Graphic: r.reuters.com/fyj35q )
Farmland values have risen each of the last four quarters, posting the strongest annual gains since 2009. The strength in land values had many veteran U.S. farm lenders who attended an agricultural lenders' conference in Omaha, Neb., nervous this week, citing agriculture's tendency to boom-bust cycles.
"Land fever is running rampant," the bank quoted one banker in northeastern Kansas as saying on the survey.
While the Fed did not directly address the question of land price inflation, it noted some concerns in the market.
"Some survey contacts felt that current elevated prices and the prospect of higher capital gains taxes in 2011 could prompt some farm owners to consider selling before year-end," it said.
The rising farmland values were driven by strong demand from both farmers and non-farm investors, the bank added.
Additionally, annual cash rental rates were higher -- up 5 percent for cropland and up 2 percent for ranchland.
"Robust demand by farmers was still the primary driver in district farm real estate markets, though investor interest in good quality farmland remained high," the Fed said. "District bankers noted that nonfarm investors typically expected a 5 percent or better rate of return on farmland purchases."
Rising grain prices helped boost the farm income index to its highest level in two years, with more gains expected over the next three months, the Fed said. District bankers also reported a significant rebound in capital spending, especially for crop equipment and grain storage bins.
Farm credit conditions improved with bankers noting higher loan repayment rates and fewer loan renewals and extensions.
"Average farm loan interest rates fell to their lowest levels since the survey began in 1976 and collateral requirements eased," the survey said.
Interest rates fell to 6.7 percent for operating loans and 6.4 percent for farm real estate loans.
(Reporting by Christine Stebbins; Editing by David Gregorio)