UPDATE 1-U.S. Midwest farmland values stay hot -Chicago Fed
* Farmland in US Corn Belt up 19 percent in Q1 from year ago
* Midwest farmland rally "torrid" pace slows from Q4 2012
* Values soar while number of farms sold rise
CHICAGO, May 15 (Reuters) - The price of prime farmland in the U.S. Midwest grain belt was up 19 percent in the first quarter compared with a year earlier, boosted by higher commodity prices and net farm incomes, the Federal Reserve Bank of Chicago said on Tuesday.
District land values extended their rapid rise at the start of the year but fell "short of the torrid pace of 2011," with prices for good agricultural land up 5 percent in the quarter compared to the final three months of 2011, the Fed said in its quarterly survey of 231 bankers in the district.
"The number of farms sold, acreage sold, and the amount of farmland for sale over the winter and early spring rose more sharply than a year ago. Almost two-thirds of the reporting bankers anticipated agricultural land values to be stable during the second quarter of 2012, while a third expected further increases," the Fed said in a statement.
The Chicago Fed district includes the heart of the U.S. Corn Belt states of Iowa, Illinois and Indiana, and parts of Wisconsin and Michigan. Iowa and Illinois combined produce about a third of the U.S. corn and soybeans, to help make the United States the world's leading exporter of those key food and industrial crops.
The Kansas City Federal Reserve also released its quarterly farmland survey on Tuesday, showing values up 25 to 32 percent and at records highs, driven by the stronger grain prices and farm incomes.
Farmland values are closely watched by Federal Reserve economists and by commercial bankers as a barometer of U.S. banking assets and as a benchmark for agricultural balance sheets. Farmland is a basic collateral for farm loans.
FARMERS IN BETTER SHAPE THAN IN 1980S
While the soaring farm land values of the past year have raised concerns among U.S. ag bankers about a farmland bubble like the one in the 1980s, when over-extended farmers lost their land as interest rates jumped, farmers are in better financial shape now.
The debt posture of many farmers is far different now than the 1980s. Net farm assets in the United States are expected to rise to more than $2.2 trillion in 2012, according to the U.S. Department of Agriculture.
Credit conditions in the Corn Belt have improved during the quarter.
"Both the index for the availability of funds for lending and the index for loan repayment rates reached their highest levels in the survey's history," the Fed said of its three-decade old survey.
"Almost two-thirds of the reporting bankers anticipated agricultural land values to be stable during the second quarter of 2012, while a third expected further increases," the Fed said, adding that many farmers continue to ease off demand for loans by paying cash for both farmland and other essentials, including equipment and buildings.
The Fed said that Iowa farmland values remained the strongest in the district with a year-over-year increase of 27 percent. Land values in Illinois, Indiana, Michigan, and Wisconsin were up 20 percent, 15 percent, 7 percent, and 13 percent, respectively. The quarterly increase in agricultural land values for the District was 5 percent and in line with the gains of the past year and a half, the bank said.
"Farmland cash rental rates in 2012 climbed 17 percent from 2011 for the District-the second-largest increase in the history of the survey," the bank said.
There was less demand for loans by farmers, leading interest rates to new survey lows of 5.34 percent on farm operating loans and 5.08 percent on real estate loans as of April 1.
Looking forward, the Fed said, the volume of non-real-estate farm loans was expected to decline from April through June of 2012 compared with the same period of 2011, entirely because of responses from Illinois and Iowa. Bankers forecast weaker demand for operating, feeder cattle, dairy, and Farm Service Agency guaranteed loans.
Loan growth was expected in farm machinery, grain storage construction, and real estate in the second quarter of 2012 compared to the same period in 2011.