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US farmland market closes 2012 on a high note

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US farm prices are ending the year on a high note despite fears that many land owners, fearful of raised capital gains levies in 2013, would sell out and dent the rally.

Farmland prices in major agricultural states including Illinois, Iowa and Nebraska rose for a 35th successive month this month.

An index compiled by Creighton University, in which any reading above 50.0 indicates expansion, came in 82.5, indicating "very brisk growth".

Readings were particularly high in Illinois and Iowa, top two US producing states for corn and soybeans, of which prices remain at historically high levels, and Kansas, the major wheat-growing state.

Cliff concerns

The increases defied fears among some commentators that the rally, which in October saw Iowa land set a state record of $21,900 per acre, would falter as landowner rushed to sell ahead of tax rises expected in 2013.

If US politicians fail to agree a budget package before the end of the year – an outcome which looked increasingly likely on Friday, given disagreement within the Republican party, besides with Democrats – the so-called "fiscal cliff" will trigger automatic measures to balance the books.

These include an increase to 23.8%, from 15%, in capital gains taxes, and a drop to $1m, from $5m, in the allowable deduction on estate taxes.

'Cheap money policy'

However, values were being supported by the US central bank's continued easy monetary policy, which in lowering borrowing costs were underpinning the appetite for farmland, Creighton University economics professor Ernie Goss said.

"The Federal Reserve's cheap money policy is pushing agriculture land prices higher," he said.

Prices were even rising in more livestock-oriented states, where the rise in grain prices has squeezed margins, and is expected to show up in official data later on Friday on November cattle placements on feedlots, expected to come in 9% below those a year before.

"In order to reduce costs, the 2012 drought and higher corn prices have forced ranchers to cut the size of their animal stocks," Professor Goss said, pegging at 14.8% the average reduction in livestock herds.

Yet Creighton's study showed prices of land in Wyoming, a ranch-oriented state, showed an index of 80.6, up 1.4 points from the year before.

'Farmers remain optimistic'

The study also showed the rise in land prices feeding through into rents, which bankers questioned for the survey said on average had increased by about 15% over the last year, with some reporting gains of more than 25%.

And spending on agricultural equipment also increased this month, with an index rating rising to 67.0 from 60.4 in November.

"With solid financial footing, farmers remain optimistic about future agriculture economic conditions and are expanding their purchases of farm equipment," Professor Goss said.


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