A revival in farmland prices in America's corn and soybean powerhouse states is expected to peter out, a Federal Reserve survey showed, flagging weakness in the dairy sector.
Farmland values in key Midwest states, including Illinois and Indiana, rose by 4% in the first three months of 2010, compared with the same period a year before, a Federal Reserve survey showed.
The increase, the strongest since the last quarter of 2008, was led by Iowa, America's top producer of both corn and soybeans, where values rose by 8%.
However, the "vast majority" of bankers surveyed for the report expected "stable" prices in the April-to-June period.
"Bankers conveyed a stronger sense that farmland values would remain the same in the second quarter of 2010," the report said.
Farmer buyers
The first quarter price revival was led by farmers, who accounted for an increasing proportion of purchases.
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Year-on-year changes in Midwest farmland prices
Q1 2010: +4%
Q4 2009: +2%
Q3 2009: -4%
Q2 2009: -3%
Q1 2009: -1%
Q4 2008: +5%
Source: Federal Reserve Bank of Chicago. Includes Illinois, Indiana, Iowa, Michigan and Wisconsin |
However, the improvement defied weak profitability for many farmers, especially in the dairy sector, a softness evident in the worst loan repayment rates for seven years.
"It reflected the troubles experienced in the livestock industry," the survey, by the Federal Reserve system's Chicago bank, said.
"Although hog and cattle prices recovered in the first quarter, milk prices retreated."
Dairy woes
A report from the University of Illinois at Urbana Champaign earlier this week said that milk prices had, after reviving late in 2009, retreated back below breakeven in February.
Mike Hutjens, a university dairy specialist, blamed the decline to large inventories of dairy products, sluggish exports and the impact of relatively high rates of US unemployment on demand.
Dairy farmers lost $800-1,000 per cow last year, he said.
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