Growth in interest by investors has fuelled a doubling in the rate of land price growth in the US agricultural heartland, provoking "concern" among bankers, who have tightened loan criteria.
The price of non-irrigated farmland in the Kansas and surrounding states "surged" by 12.9% in the year to the October-to-December period, the US Federal Reserve said.
The pace was twice that the quarter before, and the fastest since the July-to-September period of 2008, the peak of the last rally in farm prices.
Other land types set two year highs in price growth too, of 9.2% for ranchland and 14.8% for irrigated fields.
"District farmland values surged at the end of the year," the Fed's Kansas City bank said, attributing the increase to "robust" demand both from farmers, flush with profits from high crop prices, and investors.
Bankers' 'concern'
Indeed, many of the 250 banks contacted in drawing up the data "noted an uptick in investor purchases compared to last year", the Fed said.
"More bankers reported farmland was bought for investment purposes, such as receiving farm rental income and earning capital gains," with interest from oil and gas prospectors rising in Oklahoma and Wyoming.
However, the worsening prospects of covering land costs through rental income, which rose at less than half the pace of the rise in values, had begun to alarm some lenders, the Fed added.
"Some bankers expressed concern that current rental income may not sustain lofty land values, and they were looking closely at loan-to-value ratios.
"With farmland value gains outpacing the increase in cash rents, some bankers were concerned that land values may not maintain their current pace."
Farm 'bubble'?
The report comes amid increased questioning of the sustainability of the rally in prices of crops themselves, evident in a sell-off in Chicago grains on Tuesday, and some talk, most notably on soft commodity markets.
On Wednesday, for instance, Phillip Futures analyst Ker Chung Yang said that a "that potential correction could be on the cards" for rubber futures, which have already gained some 25% this year in Tokyo, setting a succession of record highs.
On Tuesday, rural economics expert Ernest Goss raised the prospect of a "bubble" in agriculture, inflated by the easy monetary policy exercised by the Federal Reserve and its chairman, Ben Bernanke.
"The Fed and Bernanke must take credit, or blame, for skyrocketing farm prices, farm income and farm land values," Professor Goss said.
However, while asking whether agriculture represented "the next bubble to burst "or "just the beginning of rapidly rising prices for non-food items", he hedged his answer.
"I argue that it is a little of both," Professor Goss sai
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