US farmland prices soar, despite drought

US farmland prices showed heady growth despite the worst drought since 1956, recording year-on-year gains of up to 30%, although some lenders hold doubts about values maintaining a strong pace of appreciation.

Farmland prices in core Midwest areas such as Iowa and Illinois, the top two corn and soybean growing states, rose 5% in the July-to-September period, from the previous quarter, when values rose by just 1%, according to central bank data.

"The impetus for higher farmland values actually strengthened during the third quarter," the US Federal Reserve's Chicago bank said, quoting findings from a survey of lenders.

The gains, which reflected growing demand among investors besides farmers, fed through into year-on-year price growth of 13%, and defied dryness which brought the US its worst drought since 1956, and devastated yields in much of the area.

'No significant impact'

Land price appreciation was even stronger in Plains states such as Kansas and Oklahoma, where values soared 24.4% year on year, led by a 30.2% rise in Nebraska, data from the Kansas City Fed showed.

"The drought did not appear to have significant impact on farmland markets in the third quarter," the bank said.

Separately, a report from Creighton University showed values across major agricultural states rebounding this month, recording their biggest month-on-month gain in at least seven years, and recording a 34th successive month of headway.

The data follow the sale two weeks ago of an 80-acre parcel in Iowa for a state record of $21,900 an acre, while in the rental market, Creighton flagged an auction for non-irrigated land in Nebraska that saw contracts achieve a record $550 per acre per year.

'Unsustainable paces'

However, Creighton economics professor Jack Goss was downbeat over the price rally continuing, saying that farmland market values were now "priced for perfection", and vulnerable to setbacks from drought or crop prices, or from a rise in interest rates from record lows.

"Farmland prices and cash rents are soaring at what I believe are unsustainable paces," Mr Goss said.

Lenders surveyed by the Kansas City Fed expected some moderation in the market, flagging "some concerns about the effects of drought extending in 2013", especially on the welfare of livestock operations facing higher crop prices, and without the cushion of insurance afforded arable farmers.

"About three-quarters of survey respondents felt that farmland values would stabilise at high levels heading into 2012," the bank said.

'Further upward movement'

However, bankers in the Midwest were at least upbeat over values for the current quarter, with 36% expecting prices rises, compared with 1% forecasting a drop in values.

"The drought does not seem to have derailed bankers' anticipation of further upward movement in farmland values," the Chicago Fed said.

"The demand to acquire farmland this fall and winter was not anticipated to ebb, particularly among farmers."

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