PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 22:43 UK, 16th Aug 2012, by Kalpana Fitzpatrick
Gains in farmland prices slow as drought bites

The pace of growth in US farmland prices slowed dramatically in the second quarter, with expectations for further increases dropping too, as drought bit into farmers' incomes, central bank data show.

In the Midwest, quarter-on-quarter price growth in Iowa, the top corn and soybean growing state, slowed to 2%, half the rate of increase in the January-to-March period, Federal Reserve data showed.

In next-door Illinois, the second-biggest corn and soybean state, where drought has struck particularly hard, appreciation slumped to 1% from 8%.

Meanwhile, heading further west and south into the High Plains, and an area covering Kansas, the top wheat-growing state, Missouri, Nebraska and Oklahoma, growth slowed to less than 3%, less than half that of the previous period.

'Intensifying drought conditions' 

The data still show historically strong growth in prices especially at an annual level, with Nebraska values, for instance, soaring 35% year on year.

"However, annual farmland value gains in Nebraska were beginning to slow with less rapid land value growth during the second quarter," Fed officials said, following banker surveys.

Furthermore, expectations for further land price gains around the High Plains "declined sharply, as more than three-quarters of survey respondents felt that farmland values would hold steady through the fall", rather than showing appreciation.

The weakened sentiment reflected drought which "wilted farm income expectations" in the area.

"By the end of the quarter, intensifying drought conditions were cutting bankers' expectations for farm income during the third quarter."

'Damper on prospects' 

In the Midwest, responding bankers "predicted that as the drought continues to spread across much of the District during the third quarter, farmland values would likely level off," if not facing much downward pressure.

"With over 70% of the respondents expecting stable agricultural land values for the third quarter of 2012, the consensus was for farmland markets to move sideways."

David Oppedahl, business economist at the Fed's Chicago bank, added: "The drought put a damper on prospects for agriculture" in the Midwest.

"A few responding bankers thought repayment problems would creep up because of the drought."

'$15,600 per acre'

Nonetheless, some anecdotal reports continue to point to market strength. Iowa-based broker US Commodities said that "if you thought the drought was going to cool off land values, think again.

"A neighbour purchased 163 acres (158.5 tillable, 133.1 soil rating) in Christian County, Illinois for $15,600 per acre. The opening bid was $10,000 and the auction was over in 15 minutes."

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