Farmland values in the U.S. Plains states rose 20 percent in the first quarter from a year earlier, with acreage commanding record prices because of red-hot demand for cropland in the world's biggest food-exporting nation, the Federal Reserve Bank of Kansas City said on Wednesday.
The rise marked the third straight year of double-digit annual increases, setting a survey record, the bank said, but the rate of gains moderated from the fourth quarter, with slower growth in farm income.
"There was a modest slowdown in farmland value growth in the first quarter," Nathan Kauffman, the bank's economist in charge of the survey, said in an interview. "At this point we haven't seen anything to suggest there is going to be a rapid decline. How this plays out going into 2014 is going to be the bigger question if farm incomes fall significantly from 2013 levels."
The Kansas City Fed's quarterly survey of 223 regional bankers is a closely watched gauge of the U.S. farm economy. The district stretches across the major wheat, corn and cattle states of Colorado, Kansas, Nebraska, Oklahoma and Wyoming, along with parts of New Mexico and Missouri. So it is seen as a barometer of both grain and livestock trends.
"The farm economy is strong. Our bankers have expressed that loan demand is still soft because the economy is so strong," Kauffman said.
Skyrocketing land values, the basic collateral for most farmer loans, have stirred fears of the possibility of a ruinous bubble the last few years like the one in the 1980s when overleveraged farmers lost their land as interest rates jumped.
But farmers, especially grain producers, are in a much stronger financial position now than 30 years ago after several years of record exports of and prices for their crops.
"Farmers have had more cash the last couple years than usual. So a lot of farmers have been using cash to pay down debt," Kauffman said. "There are certain groups that have limited cash," he added, such as livestock producers who have seen a prolonged squeeze from high corn and feed prices.
But the main holders of farmland - grain farmers - continue to enjoy profitable returns, drought or not, due to protections like crop insurance, he said.
"Most farmers have crop insurance and 2013 should be relatively strong for most farmers because they are more or less guaranteed a profit from crop insurance," Kauffman said.
SLOWER PACE OF PRICE GAINS
In the Plains, irrigated farmland attracted the most interest in the first quarter. Values rose 21.5 percent from a year earlier, boosted by lingering concerns after the worst drought to hit the United States since the 1930s, according to the Kansas City Fed survey. Plains ranchland values jumped 14 percent.