* 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 (Reuters) - 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.
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.