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* Farmers, investors paying top prices for U.S. cropland
* Farm income hurt by rising feed, fuel prices on drought
* Livestock operations, other farmers take out more loans
By Christine Stebbins
CHICAGO, Nov 15 Farmland prices in the United
States, the world's largest grain and food exporter, stayed
strong in the third quarter as cash-rich farmers and investors
ignored the worst drought in 50 years and pushed values to
record highs in many areas.
Quarterly surveys by Federal Reserve banks in the Midwest,
Plains and mid-South showed that grain farmers, though hit hard,
did much better than livestock and dairy operators in coping
with the drought, thanks to extensive crop insurance. Growers
continue to buy and rent more land, with record corn and soybean
prices seen staying as key drivers in 2013.
Farmland values had the strongest gains in the Plains states
in the July-September quarter, even as corn and soybeans wilted
from drought. Average farmland prices in the Plains states
jumped as much as 25 percent, setting new highs, according to a
Kansas City Federal Reserve survey of 241 district bankers.
"Drought conditions had little effect on the demand for
farmland, and bankers expected sales to remain solid even with a
seasonal upswing in the number of farms for sale after harvest,"
the KC Fed said of its district, which includes the major crop
and cattle states of Colorado, Kansas, Nebraska, and Oklahoma.
"It's still a hot market," said Jason Henderson, chief
economist for the KC Fed.
"I think people are expecting prices to hold at least until
the first part of the year," he added. "Right now what we are
seeing is the demand is still very strong, even though there is
more land being put on the market."
The Federal Reserve Bank of Chicago said Midwest crop land
values rose an average of 13 percent from a year ago in the
third quarter, which the bank noted was the slowest year-on-year
gain in a quarter since 2010. A year ago, Midwest crop land
prices rose 25 percent in the third quarter, the biggest jump in
more than three decades.
But the Chicago Fed indicated that was misleading since
demand in the quarter for farmland stayed strong. Farmland
prices in July-Sept were up 5 percent from the previous quarter
and crop land prices were expected to continue rising in the
fourth quarter of 2012, based on its survey of 233 bankers
published on Thursday.
"The drought does not seem to have derailed bankers'
anticipation of further upward movement in farmland values.
Moreover, the demand to acquire farmland this fall and winter
was not anticipated to ebb, particularly among farmers," the
Chicago fed said.
The bank's district includes Iowa, northern Illinois and
Indiana, and most of Michigan and Wisconsin. The region accounts
for more than a third of all U.S. corn and soybeans and has a
large concentration of hogs and cattle, especially dairy; and
supports a vast new network of ethanol and biodiesel plants.
"The high level of interest in farmland should also persist
on account of the sustained strong demand among nonfarm
investors," the bank said, with a third of the bankers surveyed
saying they expected more investor demand for prime Midwest farm
The St. Louis Federal Reserve Bank, in a survey of mid-South
farmland issued on Thursday, said farmland prices varied in the
quarter, with Missouri row crop land drawing the highest prices.
But district farmland prices in general were forecast to keep
rising in the next three months. The St. Louis Fed just began
its surveys last quarter.
CLOSELY WATCHED BELLWETHER
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 spotlighted the value
of hard rather than paper assets.
In October, a parcel of 80 acres of crop land in
northwestern Iowa sold for a record $21,900 an acre.
Sky-rocketing land values have stirred banker fears about
the possibility of a ruinous farmland bubble like the one seen
in the 1980s U.S. farm crisis, when over-leveraged farmers lost
their land as interest rates jumped. But farmers are carrying
much less debt today, thanks to record incomes in recent years.
According to the U.S. Agriculture Department, U.S. farmer
assets will rise to $2.55 trillion in 2012, up 26 percent from
2008. Of those 2012 assets, $2.2 trillion is represented by
farmland. Farm debt is projected up 8 percent from 2008 to a
$261 billion in 2012. So both debt-to-equity and debt-to-asset
ratios for farmers are down sharply.
Bankers said that despite the drought many grain farmers
look set to continue to buy crop land in coming months.
"Land value gains continued to accelerate faster than cash
rents as annual rental rates increased an average of 12 percent
for both cropland and ranch land in the third quarter," the KC
Fed said, underscoring the farmer demand for land.
(Reporting By Christine Stebbins; Editing by Peter Bohan and