* Irrigated cropland values up 30 pct in Q4 from year ago
* Farmers remain the predominate land buyers
* KC Fed bank survey follows St. Louis and Chicago
By Christine Stebbins
CHICAGO, Feb 15 Farmland values in the U.S.
Plains states jumped more than 20 percent in the fourth quarter
from a year earlier as farms sold at record-high prices, with
the biggest jump seen in irrigated land given the worst drought
in 50 years to hit the world's top food producer, the Kansas
City Federal Reserve bank said.
This was the seventh consecutive quarter irrigated and
non-irrigated cropland values posted year-over-year gains of
more than 20 percent as record crop prices kept demand hot for
farmland, according to a quarterly survey of bankers by the
Kansas City Fed released on Friday.
"What really stuck out in the survey was the difference
between irrigated and non-irrigated cropland values...irrigated
land is a way to protect from the possibility of these
droughts," said Nathan Kauffman, a KC fed economist and one of
the authors of the survey.
"Persistent drought sparked a rush in irrigated farmland
sales during the fourth quarter of 2012. Stronger sales vaulted
irrigated cropland values in the District 30 percent above
year-ago levels, with a 13 percent jump in the fourth quarter
alone," the Fed said of its survey, which draws on comments from
232 district bankers.
Non-irrigated cropland and ranchland posted strong annual
gains of between 20 and 25 percent.
The KC Fed district stretches across major wheat, corn and
cattle states of Colorado, Kansas, Nebraska, Oklahoma and
Wyoming along with parts of New Mexico and Missouri.
U.S. Plains farmland values:
Farmland values 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 assets.
In turn, farm income has also set records. But skyrocketing
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 when
interest rates jumped.
"Farm prices are high, but so are commodity prices and
interest rates are very low. Those are the two biggest
determinants of what farm ground should sell for," said Phil
Burns, chief executive of F&M Bank in West Point, Nebraska. "The
question becomes how sustainable are either or both looking
longer term? In the short term everything looks fine."
The Kansas City district survey comes after fourth quarter
surveys earlier this week from the St Louis and Chicago Fed
banks. The latter two surveys covered the northern Corn Belt and
central Delta states, with both reporting similar results -
strong farm income aided by crop insurance and strong farm
spending for land and equipment, partly due to year-end doubts
about higher taxes in 2013.
Farmers remain the predominate land buyers, accounting for
three-fourth of the sales in the Plains in the fourth quarter.
Bankers said farmers used more cash to finance purchases
compared to a year ago. Nonfarmers continued to buy land for
"Almost all recent auctions were sold to the largest farmers
in the area wanting to get bigger. The buyers are strong and
most are cash sales," said one banker from northwest Missouri.
Cash rental rates also surged in the quarter, with irrigated
cropland up 20 percent and non-irrigated rising more than 14
FARM INCOME STRONG DESPITE DROUGHT
Farm incomes rebounded in the quarter despite expectations
that drought would hurt profits, the KC Fed said.
"Crop incomes remained high, as farm operations with
irrigated cropland had less yield loss and sold crops at high
prices, while many farm operations without irrigation received
crop insurance payments, mitigating losses," the bank said.
Following the autumn harvest crop prices eased back as
export demand weakened and ethanol production slowed, providing
some relief to livestock producers through lower feed costs.
Significantly, cattle and hogs firmed in the quarter improving
profits in the livestock sector toward the end of 2012. The
district contains the top cattle feedlot states, with the
exception of Texas.
Higher farm incomes boosted capital spending and led to
improved agricultural lending conditions, although overall loan
demand remained low with many grain farmers flush with cash.
Loan repayment rates increased at a pace on par with a year ago
while interest rates for operating and real estate loans edged
lower, the bank survey said.
"Although fourth-quarter incomes were better than expected,
bankers expressed concerns that drought could affect some areas
further in coming months. Farm incomes were expected to drop in
Kansas and Oklahoma, as pasture conditions generally remained
poor due to ongoing drought. But strong farm incomes were
expected to continue in areas with sufficient water
availability," the Fed said.
"Water scarcity led to differing farm incomes and
farmland-value gains by state," the bank added.