Sentiment over the US farmland market remain upbeat even
after a third successive year of strong gains, matching those of the mid-1970s
run which heralded the early 1980s collapse in prices.
US farmland prices jumped in 2012 by up to 34% – for
irrigated land in Kansas – despite drought damage to the country's harvests, as
high crop prices and insurance claims expected to hit a record $21bn supported
agricultural finance, the US central bank, the Federal Reserve, said.
In major Midwest states including Illinois, Indiana and
Iowa, the top corn and soybean producing state, values have risen by 52% since
the farmland price rally restarted in 2010, following the world financial
This matched "the fastest gain of the 1970s boom, over the
period 1974-76, in real terms", the Fed network's Chicago bank said.
The extent of the rally has provoked concerns over the
ability of outsiders to enter agriculture, with bankers telling the Fed that
these young or prospective farmers were "having difficulties acquiring land at
today's high prices, due to their
holding less equity", in terms of existing land.
Nonetheless, with 43% of bankers telling the Chicago Fed
that they expected higher levels of land purchases this year than in 2012,
compared with 15% foreseeing lower activity, sentiment indicates "that momentum
for rising farmland values still exists on the demand side in the year ahead",
the bank said.
All but 1% of bankers surveyed foresaw land prices staying
stable or appreciating in the current quarter in the Chicago Fed region.
The Fed's St Louis bank, which covers states further south,
such as Arkansas , as well as parts of Indiana, also indicated a strong
majority of opinion in favour of rising prices.
"Bankers expect land values and cash rents to continue
rising," the St Louis Fed said.
Pay extra for water
It added that "gains in quality farmland are generally
expected to outpace gains in ranchland or pastureland (non-irrigated)" – a
trend reflected too in the latest quarter.
Fed data from Plains states such as Kansas, Missouri and
Nebraska showed irrigated land rising by 30% over 2012, ahead of a 25% rise for
plots without access to watering.
"Since the onset of the 2011 drought, annual gains in
irrigated cropland have outpaced gains in non-irrigated cropland by 3% on
average," having historically moved in tandem, the Fed's Kansas City bank said.
It also flagged an increase of purchases of land for
non-farming purposes, such as recreation or housing, after four years of
The latest gains in land prices defy concerns earlier in
2012 that the prospect of a hike in capital gains tax rates, as the US
attempted to balance its books, would undermine the market - encouraging
sellers to make the most of lower levy rates, while discouraging buyers.
As it is, the US capital gains tax changes proved to be
relatively minor, with the rate raised from 15% to 20% for individuals with
incomes of more than $400,000, or couples earning more than $450,000.