CHICAGO On a chilly winter day in January, more than 200 investors gathered in west central Illinois to haggle over 4,000 acres of prime farmland called the Kilton Farm in the heart of U.S. Corn Belt.
The auction came amid the most depressing climate for the U.S. economy in decades: recession, a banking crisis, soaring joblessness and foreclosures, plummeting consumer confidence.
But when the hammer fell on the last bid, the land brought top dollar: $24 million, or an average of $6,200 an acre.
That was no surprise to farmland experts, who say most high quality tracts in the U.S. farm belt have held up well even as waves of Wall Street paper assets have been shredded.
"It's very unusual to have a farm that was that big and so much of the land was contiguous. You could walk for 1,600 acres and never step foot off the Kilton Farm," said Kurt Aumann of Nokomis, Illinois, one of the auctioneers that day.
"Farmland is completely different than other real estate, residential or commercial. That market is really tough, where the ag market is very strong," Aumann said.
The average price of an acre of U.S. farmland more than doubled from $1,030 in 1999 to $2,350 in 2008, according to the U.S. Agriculture Department. Over that period the Dow Jones Industrial Average fell over 20 percent and is down further in 2009.
High prices for top Midwest farmland like the Kilton Farm are still holding up these days, shrugging off factors like weaker crop prices or the housing price crash in metro suburban areas due to foreclosures are taken into account.
"Farmland in part is driven by commodity prices. How much retracement we see in commodities is going to end up having some impact on farm values. That's a concern," said Jerry Warner, president of American Society of Farm Managers and Rural Appraisers and chief management officer with Farmers National, a farm management firm in Omaha, Nebraska.
"But the amount of debt on farmland across the board is pretty low. So farmers are in good shape financially at this point and there is no pressure for farmers to sell. About the only land coming onto the market is related to settling an estate."
That was the case with the Kilton parcel, where about 75 percent of the 4,000 acres ended up with farmers while individual investors, investment funds and insurance companies scooped up the rest.
FARMERS, IN GOOD SHAPE, ALWAYS IN THE MARKET
The amount of farm debt is low after two back-to-back years of record income for farmers. Last year alone, U.S. farm net income topped $86.9 billion, driven by soaring corn, soybean and wheat markets amid strong export and biofuels demand.
Corn, wheat and soybean prices are down 50 percent from their all-time highs of last summer. The U.S. Agriculture Department now sees a 20 percent decline in net farm income to $71.2 billion for 2009.
But economists are quick to remind doomsayers that even the 2009 forecast would still be 9 percent above a 10-year average and, if realized, would be the fifth largest in history.
Warner said he had seen strong farm sales of good Midwest cropland this month. One tract in central Iowa, the top U.S. corn state, brought $7,050 an acre; another $6,850. A central Nebraska grain farm brought in $4,050 an acre, he added.
"Top grade land seems to be right at the peak, it doesn't seem to have retraced very much at all. Lower grade land is down perhaps as much as 20 percent. Overall, land may be off 5 to 10 percent from the high during mid-2008 when commodities were the highest," Warner said.
Those estimates are in line with the Federal Reserve Bank of Chicago quarterly survey of ag banks in Iowa, Illinois, Indiana, Wisconsin and Michigan that was issued last week.
The survey showed farmland values declined five percent in the fourth quarter of 2008, the first quarterly drop in a decade. But January 1 year-on-year prices were up 5 percent.
"A lot of auctions were not leading to sales, and prices started to decline in the final quarter of the year," said David Oppedahl, Chicago Fed economist who oversaw the survey.
Of the 209 Midwest bankers responding, 4 percent expected farmland values to increase during the first quarter of 2009 ending in March and 35 percent expected a decline. The remainder - 61 percent - forecast values to remain stable.
(Editing by Peter Bohan and Marguerita Choy)