(Updates with Chicago Fed survey, adds graphic)
By Christine Stebbins
CHICAGO May 15 Farmland prices in the U.S. Plains and Midwest eased along with farm income in the first quarter of 2014 and more softness was expected into the summer, according to Federal Reserve Bank quarterly surveys issued on Thursday.
Tighter profit margins for crop producers were a drag on farm income in the first quarter despite improved profitability in the livestock sector with lower feedgrain prices.
With lower income, more crop producers borrowed to pay for operating expenses and bankers reported an uptick in debt compared with last year. But concerns about a sharp drop in land values after last autumn's 30 percent drop in corn prices appeared to be easing.
"Even with the first quarterly decrease in five years, the year-over-year change in District agricultural land values managed to stay positive in the first quarter of 2014," said the Chicago Fed, citing a 1 percent drop in values from the preceding quarter but a 1 percent rise compared with a year ago in its region, which is the top corn, soybean and hog producing area of the United States.
The price of farmland is closely watched by Fed policy makers, farm lenders and farm suppliers from equipment makers to seed dealers since farmland is the basic collateral for most farm loans.
A five-year boom in grain prices fed by exports and biofuels ended last autumn after a bumper harvest. But land auctions over the winter generally held up well, relieving bankers who have fretted about a potential "farmland bubble" popping after the boom.
"Low corn and soybean prices combined with relatively high input costs tempered farm income and crop land values as spring planting approached," the Kansas City Fed said in its survey of lenders in the central and southern Plains states dominated by wheat, corn, cattle and sheep producers.
The Kansas City Fed said non-irrigated farmland values dipped 1.4 percent from the fourth quarter of 2013 while irrigated farmland values rose 0.5 percent. But strong demand for high-quality grazing pastures pushed ranch land values up 2.6 percent.
Compared with a year ago, average prices for non-irrigated southern and central Plains crop land were up 4.4 percent, for irrigated land up 6.4 percent and for ranch land up 8.6 percent, the survey showed.
That resilience in land values in the face of lower grain prices was also reflected in land prices in the southern Midwest and mid-South, a grain and cotton area, surveyed by the St. Louis Fed.
The St. Louis bank said its survey of 49 bankers in the region showed average crop land values eased 6.3 percent from the fourth quarter while grazing land prices remained steady, reflecting the same trends in market prices and income seen in Chicago and Kansas City surveys.
"Farm income in the first quarter turned out to be modestly stronger than respondents expected three months earlier," the St Louis Fed said. (Editing by Jeffrey Benkoe, Alden Bentley and Matthew Lewis)