UPDATE 1-Some U.S. farmland values surge more than 25 pct -Fed

Thu Aug 15, 2013 1:42pm EDT

By Carey Gillam

KANSAS CITY, Mo. Aug 15 (Reuters) - Farmland prices in key U.S. crop regions surged more than 25 percent over the past 12 months as demand for land remains strong despite a decline in farm income, two Federal Reserve bank reports said on Thursday.

Prices paid for irrigated cropland in a central U.S. region that includes Kansas, Nebraska, Missouri and Oklahoma jumped 25.2 percent from a year ago, according to a report by the Federal Reserve Bank of Kansas City.

The jump marks the ninth consecutive quarter in which irrigated cropland values have risen more than 20 percent year-on-year.

Non-irrigated cropland rose 18 percent from a year ago, while ranch land rose 14 percent, the report said. Gains were weaker for ranch land, particularly in Oklahoma and some mountain states, because persistent drought left pastures in poor condition.

In the Midwest and in some Mid-South states, including Arkansas and parts of Missouri, Mississippi, Tennessee, Kentucky, Indiana and Illinois, prices for quality farmland rose 20.6 percent over the last year to $5,672 per acre on average, according to a report by the Federal Reserve Bank of St. Louis.

However, average ranch or pastureland values for the Midwest and Mid-South district increased only about 1 percent to $2,372 per acre over the past year, the report said.

The gains come even as farm income in many states is declining, in part due to reduced revenues for wheat and losses in the cattle sector, according to the Kansas City report.

The reports are based on surveys of bankers, who pointed to the overall wealth of the farm sector, the current low interest rate environment and a lack of alternative investment options for the price rises.

Still, there is a growing sense that values are nearing, or have reached, a peak.

While most bankers expected farmland values to remain at current levels, an increasing number of those responding to a survey by the Federal Reserve Bank of Kansas City felt farmland values might have peaked. Compared with previous surveys, fewer bankers expected farmland values to keep rising. Among those expecting values to fall, most thought the decline would be less than 10 percent, the Kansas City report said.

The Kansas City federal reserve district encompasses key wheat-producing states and large cattle and livestock production areas, while the Chicago district is dominated by corn and soybean farms, as well as large hog and dairy operations.

In the Federal Reserve's Seventh District, which encompasses Illinois, Indiana, Iowa, Michigan and Wisconsin, values for good farmland rose 17 percent from a year ago, but were flat compared with the first quarter, according to a survey of 211 agricultural bankers. The district is overseen by the Federal Reserve Bank of Chicago.

The last time there was no quarter-over-quarter rise in value was 2009, the bank said in a report also issued on Thursday.

"While the farmland values on a year-over-year basis still appeared to be soaring, changes in farmland values on a quarterly basis may be presaging shifts in the year-over-year pattern in the latter half of 2013," the report said.

Indiana saw a 21 percent jump in the value of good farmland in the second quarter of 2013 compared with a year earlier. Iowa, the nation's key corn-producing state, and Michigan both saw average values for good farmland rise 18 percent, while Illinois was up 17 percent and Wisconsin 7 percent.

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