UPDATE 1-US Midwest farmland values up 15 pct in 1st quarter -Chicago Fed

Thu May 16, 2013 5:57pm EDT

By Christine Stebbins

May 16 (Reuters) - Farmland prices in U.S. Midwest Corn Belt states in the first quarter of 2013 rose 15 percent compared to a year ago as demand for land remained strong but the frantic pace of recent gains slowed down, the Federal Reserve Bank of Chicago said on Thursday.

The Chicago Fed's quarterly survey of 219 bankers also showed prices of good farmland rose 4 percent in the first quarter of 2013, from the fourth quarter of 2012. That compares to a 5 percent gain over the same period a year ago.

"Signs of moderation in farmland value gains emerged," the bank said of its district, which includes most of Iowa, Wisconsin, Michigan and northern Illinois and Indiana. "That said, the year-over year increase in agricultural land values was 15 percent in the first quarter of 2013, nearly matching the annual gain of 2012."

The land price trends mirror what was reported on Wednesday by the Kansas City and St Louis Federal reserve banks for the first quarter. The Kansas City district, like the Chicago Fed's district, are closely watched as barometers of the overall farm economy, one of the bulwarks of the U.S. economy.

The U.S. Agriculture Department estimates that U.S. farm net asset values will surpass $2.4 trillion in 2013, with more than 80 percent of that value tied up in farm land.

The Chicago Fed's district is dominated by corn and soybeans, the two biggest row crops in the United States, but is also home to a big hog and dairy industry. Such livestock producers have felt the strain from record grain prices in recent years and some of that strain on farm finances may have carried over to weakness in land values. Pockets of the Midwest saw some land values ease, with Wisconsin land prices easing 3 percent from year-ago, the Chicago Fed said.

"Even though the numbers remain pretty large for much of the district there were some pockets that were starting to show decreases in land values," David Oppedahl, the bank's economist in charge of the survey, said in an interview. "Whether that's just an aberration or not is yet to be seen."

"The weakness in some sectors like dairy might account for part of that and the general trends in prices over the next season are looking to be lower. So there's not going to be as much support for higher farmland values going forward," he added.

Overall district land values were steady to higher on the prior quarter and a year ago, the survey said, buoyed by record grain prices and crop insurance payments.

"There was higher demand to purchase farmland in the three- to six-month period ending with March 2013 compared with the same period a year ago," the Chicago Fed said. "The supply of farmland was higher too."

A little more than one-third of survey participants reported that farmers increased their share of farmland acres purchased in the three- to six-month period ending in March 2013 versus the same period a year earlier, while 62 percent saw no change, according to the bank survey.

Looking ahead, the Chicago Fed said that lower crop prices could slow the upward trend in farmland values. For the second quarter of 2013, 19 percent of bankers surveyed predicted farmland values to increase, while 4 percent expected them to decrease; the vast majority anticipated farmland values to be stable.

That outlook was based on recent favorable, wet weather that has replenished soils and sub-soil moisture throughout most of the northern Corn Belt, the bank said.

"Heavy precipitation has delayed planting this spring, in sharp contrast with last year, when planting occurred ahead of schedule. That said, the rains have revitalized much of the subsoil. During last year's drought, subsoil moisture played a key role in preventing even deeper losses in agricultural output," the bank noted.

The continuing strength in Corn Belt farmland prices kept improving the values for cash rents in the district and overall credit conditions for farmers.

"At 161, the index of funds availability nearly matched last year's record, with 61 percent of the survey respondents reporting their banks had more funds available to lend and under 1 percent reporting their banks had less. The index of repayment rates for non-real-estate farm loans moved up to 143 for the first quarter of 2013 - its highest value since setting a new high a year ago; 47 percent of the responding bankers reported higher rates of repayment and 4 percent reported lower rates," the Chicago Fed said.

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