Agriculture • US Farmland Are Insane
USA – Farm prices are insane 02 Jun 2012
Farmland values across the U.S. Midwest continued to surge in the first quarter, buoyed by high crop prices and easing drought conditions in some states.
High prices for corn, wheat and soybeans have fueled a boom in the U.S. farm economy, driving up demand for everything from fertilizer to farm equipment.
The increase in farmland values has fueled talk that a bubble may be building, but many economists say farmers are well-positioned to weather a downturn because they carry relatively low debt levels.
In the heart of the U.S. corn belt, cropland values rose 19% in the first quarter from the year-earlier period, the Federal Reserve Bank of Chicago said in a report Tuesday.
While it noted that the year-over-year price increases edged down from the "torrid" pace of 2011, farmland values still increased 5% from the previous quarter.
A separate report Tuesday from the Federal Reserve Bank of Kansas City showed even greater increases, with values for nonirrigated farmland across the district, which includes much of the central and southern Plains, jumping 25% from a year earlier and 8% from the prior quarter.
Cropland values in that district were also fueled by increased energy production in states such as Oklahoma and Kansas, which boosted land-lease revenue from mineral rights.
The price of irrigated farmland, which is prevalent in the Plains because of a drier climate, jumped 30% from the year-earlier period. Easing drought conditions in the region, where soils were parched during much of 2011, also fueled farmland gains.
Economists say farmland values are getting a boost from U.S. crop prices, which already were high but surged further in the first quarter, in part because of strong demand from China. Low interest rates are also a factor, because they make it less-costly for farmers to borrow money to buy land.
Although many economists say farmers are in better financial shape than in the 1980′s, when a farmland bubble popped, the continued cropland price increases are likely to fuel more questions about whether prices are sustainable.
The U.S. Department of Agriculture estimates 2011 farm income at a record $98.1 billion, up from $79.1 billion in 2010, but it projects income will fall over the next few years, to $76.4 billion in 2015.
"People who are buying ground right now are overly optimistic," said Michael Swanson, an agricultural economist with banking giant Wells Fargo & Co. "Nothing stays that good for that long."
Swanson said farmers buying land are counting on high crop prices for many years to come.
But farmers around the world, also acting on high crop prices, are poised to dramatically increase their production in the coming years through better fertilizer, herbicide, seeds and equipment.
That will eventually drive prices lower, Swanson said.
Prices are already expected to pull back this year for U.S. corn, a main driver of farmland values in places such as Iowa, where farmland values were up 27% versus a year ago.
Last week, the USDA projected corn prices of between $4.20 and $5 in the year ahead, down from current spot prices near $6.
The government is expecting a record corn crop this summer, with farmers planting the most acreage since at least World War II.
Farmland values are vulnerable to a pullback, said Bob Young, senior economist with the American Farm Bureau Federation, a large trade group representing farmers.
"With these types of interest rates and these commodity prices, farmland values are probably right where they should be," he said. "Change either one of those variables, and they’re not."
Still, Young and other economists noted that producers have been paying down debt and largely using cash to make their purchases. This will leave them in a better position if prices retreat.
"If there is a correction, I think most producers will be able to weather that," said Jason Henderson, an economist with the Kansas City Fed, in an interview.
Most of the purchasers of cropland during the recent boom have been farmers, economists say, but outside investors continue to look for farmland.
On Monday, TIAA-CREF disclosed it had raised $2 billion to invest in farmland in the U.S., Brazil and Australia.
Statistics: Posted by yoda — Sat Jun 02, 2012 3:50 pm
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