* Number of farms sold rise in quarter
* Farmers remain the biggest buyers of farmland
* Credit conditions improve as farmers pay down debt
By Christine Stebbins
CHICAGO, May 15 U.S. farmland prices soared to
record highs in the first quarter of 2012 fueled by strong crop
prices and buoyant farm income, with the pace of sales strongest
in the Plains but firm also in the Midwest Corn Belt, according
to two Federal Reserve bank surveys released on Tuesday.
The value of nonirrigated cropland in the Plains, which
stretches across big wheat, cattle and corn states, was up 25
percent from a year ago and irrigated farmland prices jumped 32
percent, the Kansas City Fed said.
For irrigated farmland, the year-to-year percentage increase
was the largest in the 30-year history of the survey. Ranchland
values, rich in grazing pasture, gained 16 percent, with high
feed costs boosting demand from cattle ranchers, the Kansas City
Fed's survey of 235 bankers stated.
"District farmland value gains accelerated in the first
quarter even as record-high farmland values enticed more
landowners to sell," the KC Fed said. "For the first time since
the survey began in the late 1970s, the annual value of District
cropland rose more than 20 percent for two consecutive years."
"It's a very hot market. We've sold just over $400 million
worth of land in the last seven months -- and people are still
interested," said Jim Farrell, CEO of Farmers National Company,
the largest U.S. farm management company, based in Omaha.
The price of prime farmland in the heart of the Midwest Corn
Belt also rose -- up 19 percent in the quarter compared to a
year ago. Land values in Iowa, Illinois, Indiana, Michigan and
Wisconsin kept rising at the start of the year but fell "short
of the torrid pace of 2011," the Chicago Fed said.
Prices of prime crop land rose 5 percent in the quarter
compared to the final three months of 2011, the bank said based
on its survey of 231 bankers across the district.
KEY BAROMETER FOR BANKS, ECONOMY
Farmland values are closely watched by economists at the
Federal Reserve 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.
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.
Some bankers have worried about the possibility of a
farmland bubble like the one seen in the 1980s, when
over-extended farmers lost their land as interest rates jumped.
But booming grain demand in recent years has transformed the
debt posture of many farmers, analysts say.
Jason Henderson, chief ag economist for the Kansas City Fed,
said farmers are in much better shape than in the 1980s.
"The worry about farmland values is always in the background
especially with some of the forecasts that crop prices are going
to average below $5 per bushel for corn this year. That means
it's going to squeeze margins," he added.
Both Fed banks, however, said credit conditions for farmers
and agricultural banks continued to sparkle. Cash flows allowed
grain farmers to retire debt even as capital spending on
equipment and buildings expanded. Farm asset values rose and
loan demand shrank again as many farmers paid bills with cash.
Big ethanol states -- with corn as the main feedstock -- led
the jump in land prices. Farmland in Nebraska rose 38.6 percent
for nonirrigated acreage and 41.4 percent for irrigated. Iowa
followed with farmland prices up 27 percent from a year ago.
Land auctioneers report that the price of top farmland
across the Plains and into the Midwest soared to as high as
$14,000 - $15,000 an acre, up from $8,000 to $10,000 in 2011.
Just 10 years ago similar top-dollar land in the top corn
state of Iowa sold for about $1,900 an acre.
"We continue to bring more and more property on the market
and still have good demand," said Farrell, whose firm sold 700
to 800 farms in 2011.
The Chicago Fed reported that the number of farms sold,
acreage sold, and the amount of farmland for sale over the
winter and early spring were up sharply from a year ago. Farmers
led the charge in bidding for land "although investors were
actively searching for properties across the District," it said.
Bankers across both districts did not expect the farmland
market to cool any time soon. Roughly two-thirds of the
reporting bankers anticipated agricultural land values to hold
near peak levels while a third expected further increases,
according to the surveys by both banks.