UPDATE 1-U.S. southern Midwest farmland prices edge up in Q4 - Fed

Thu Feb 13, 2014 11:13am EST

(Adds rents, background)

By Christine Stebbins

CHICAGO Feb 13 (Reuters) - Prices of quality farmland in the southern Midwest and mid-South region of the U.S. crop belt edged higher in the fourth quarter, bouncing back from a third-quarter slide which halted years of gains, the Federal Reserve Bank of St Louis said on Thursday.

"Quality farmland values across the district averaged $5,868 per acre in the fourth quarter of 2013, which was modestly higher than the third-quarter average of close to $5,300 per acre," the bank said in its quarterly bank survey.

"When measured against figures from a year earlier, quality farmland values in the eighth district increased by 12.2 percent."

The district comprises Arkansas and portions of Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee. The bank's quarterly survey is based on responses from 49 farm lenders in the district.

The region is a top producer of corn, soybeans, hogs, winter wheat and other cash crops.

Cash rents for quality farmland across the district averaged $190 per acre in the fourth quarter, up 5 percent from the third quarter. Cash rents for ranch or pastureland were up slightly at $65 per acre from the third-quarter average of $62 per acre.

The fourth-quarter results reflected a rise in farm income in the fourth quarter, the bank said. But for the second consecutive quarter, it added, "more bankers expect quality farmland values to decline over the next three months relative to a year earlier," the bank said.

Farmland values in the central United States are closely tracked by government economists as a gauge of the U.S. economy and health of the banking system. In recent years, both crop prices and farmland prices have set records as the burgeoning biofuels industry and record food exports boosted prices.

But the sharp drop in last-half 2013 grain prices, particularly corn, in a record harvest one year after a record drought has stirred concerns the possibility of a ruinous farmland bubble like the one seen in the 1980s U.S farm crisis. The steadiness in fourth-quarter land auctions and rent negotiations will relieve some of those worries.

The St. Louis Fed said that 63 percent of farm bankers surveyed said the single biggest risk to the district's farmers in 2014 "stems from lower-than-expected commodity prices," with the second biggest risk higher costs expected for fuel, seed and fertilizer. It was those expectations that fed the general consensus that farmland prices in coming months would ease back, the bank said.

But bankers surveyed said they see no change in average cash rents for ranch or pastureland over the next three months relative to a year earlier. Most 2014 rent arrangements are contracted in the fourth quarter and first quarter of the year.

The Chicago Federal Reserve is to release its quarterly survey on Thursday afternoon, while the Kansas City Fed is set to issue its banker survey on Friday. (Reporting By Christine Stebbins; Editing by Sophie Hares and Jonathan Oatis)

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