US Farmland Prices Keep On Rising

http://www.ft.com/cms/s/0/caa6bdd0-05c0-11e3-ad01-00144feab7de.html#ixzz2cP3tHszb August 15, 2013 By Gregory Meyer in New York Farmland values in a critical US agricultural region continued their rise in spite of weakening crop prices, as low interest rates and a dearth of investment alternatives spur wealthy farmers to amass more acreage, Federal Reserve economists have reported. Irrigated land in states such as Kansas and Nebraska gained 25.2 per cent year on year in the quarter ended June 30, the ninth straight quarter in which annual price rises have topped 20 per cent, the Federal Reserve Bank of Kansas City said in a survey of bankers published on Thursday. The sharp increase in the face of an expected decline in incomes will further stoke debate about whether land prices reflect fundamental farm economics or have been artificially inflated by low interest rates. In a separate survey of a district that includes Illinois and Indiana, the Federal Reserve Bank of Chicago reported farmland values rose 17 per cent from a year before. But second quarter values were unchanged from the first quarter, in the first flat quarterly results since 2009. The lion’s share of US farmland is still bought and sold by farmers, but it has also attracted large institutional investors such as TIAA-CREF and pension funds. Grain prices fell in the survey period, with hard winter wheat futures down 8 per cent in the year to June 30. Questions about the direction of US biofuels policy also weigh on investors’ minds, said Philippe de Lapérouse of consultant HighQuest Partners. The retreat in crop prices is expected to hit US farm revenues. Equipment maker John Deere forecasts a 6 per cent drop from a record $402.1bn last year to $379.7bn in 2014. The Kansas City Fed said: “Bankers expected income to drop further in the next few months due to the possibility of sharply lower corn and soyabean prices at harvest. Despite lower farm income and expectations of additional declines, farmland values surged further during the second quarter.” The survey found that farmers’ overall wealth levels, as well as “low interest rates and a lack of alternative investment options”, were more important factors behind the boom than expected incomes. To date, concerns about a looming bubble have been answered with the facts that farmers’ debts are low relative to their assets, speculators are in the minority and grain prices are still relatively high. Meanwhile, the average interest rate on farm real estate loans rose slightly to 5.38 per cent in the quarter, its first increase in more than two years in the Kansas City district. “Farm loan repayment rates softened in the second quarter and were expected to weaken in coming months with lower farm income,” the Kansas City Fed said. The Chicago Fed said most bankers envision stable land prices. “The anticipation of lower crop revenues – especially when combined with potentially rising interest rates on farm loans – portended softness in future farmland values,” its survey said. Nationally, farmland has gained 9.4 per cent on average from 2012, the US Department of Agriculture said earlier this month. Taylor Scott International