Thursday, May 19, 2011

Rise in Midwest farmland prices hits 32-year high

by Agrimoney.com

The rate of increase in Midwest farm values has hit a 32-year high, despite a rise in land for sale – and the rally does not look over yet.
Farmland prices in major agricultural states such as Illinois and Iowa soared 16%, year on year, in the first quarter of 2011, the Federal Reserve said.
The increase in the growth rate to a figure matched only once since 1979, in 2007, came despite a rise in the plots offered for sale, with the extra supplies mopped up in particular by farmers clamouring for extra land to cash in on elevated crop prices.
"The latest gains were spurred by higher commodity prices, which prompted farmers to buy additional land," the Federal Reserve's Chicago bank said.
Indeed, farmers "tended to outbid" investors in the land rush.
Market boom
The market conditions, with rising prices and volumes, would appear ideal for agents assisting in land sales, and relying on commissions for deals.
"The number of farms sold, the acreage sold, and the amount of farmland for sale grew," the Chicago Fed said.
And more than half bankers the Fed spoke to for its report forecast further gains ahead for land prices, with only 2% expecting a decline.
"The rapid increase in agricultural land values may not be over," the Fed said, adding that the increases had been reflected in rental prices, which had risen nearly in line, with 14%.
Paybacks
The rise in land prices was supported by an increase in funds for lending to farmers although, at just under 70%, the loan-to-deposit ratio – a key measure of the levels to which borrowers are extending themselves – fell to a 14-year low and well below levels ringing alarm bells in banks.
Indeed, farmers paid of a stack of borrowings taken out for purchases other than land, with demand for new ones falling to a 24-year low.
"Farmers had less need to seek bank loans," the Fed said.

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