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U.S. farmland prices hit record highs on crop demand

U.S. farmland prices hit record highs on crop demand
By Carey Gillam and Christine Stebbins
KANSAS CITY/CHICAGO | Tue Nov 15, 2011 3:56pm EST

KANSAS CITY/CHICAGO (Reuters) – U.S. farmland prices in the third quarter saw their biggest surge in over three decades in an accelerating agricultural boom that has so far defied fears of a bubble about to burst.

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Prices hit record highs in the U.S. Plains, where wheat and cattle dominate production, and jumped 25 percent in the Midwest Corn Belt where bumper grain crops and recovering livestock markets put more money in farmers’ wallets and enticed investors to bid up for the fertile ground, according to two Federal Reserve bank surveys issued on Tuesday.

“It is amazing,” said Carl Sousek, who has farmed for 30 years in east-central Nebraska. “I’ve been in this business long enough, I remember working a night shift just to get by, to be able to buy Christmas gifts for the kids. These are good times.”

Cropland values in the Plains states rose more than 25 percent over the past year to a record high while ranchland values increased 14 percent, the Federal Reserve Bank of Kansas City said in its quarterly survey of 243 banks in the region.

Nebraska posted the strongest gains with irrigated and nonirrigated land values rising approximately 40 percent above year-ago levels, the Kansas City Fed said of the Plains states.

Meanwhile, the price of farmland in the Midwest Corn Belt rose 25 percent in the third quarter, the biggest year-on-year jump in more than three decades, a survey by the Chicago Federal Reserve Bank showed.

Strong farmland prices are a rare bright spot for the U.S. economy. Grain farmers are retiring debt and building equity, moves that buttress farm banks and lenders like the Farm Credit System.

The gains are in part tied to the booming biofuels industry, which creates stronger demand for corn, and international demand from China and elsewhere that is strengthening the U.S. position as the world’s top food and grain exporter.

The top U.S. corn-growing state of Iowa is seeing eye-popping prices, according to land brokers.

Last month, buyers of an 80 acre farm outside Des Moines paid $16,200 an acre for the row crop and pasture land, a staggering amount that surprised veteran land agent and auctioneer Jeffrey Obrecht of Farmers National Co in Iowa.

“We had an opening bid of $10,000 an acre, and it kept going up and up and up,” Obrecht said. “That was a lot, even for what we’re seeing out here.”

Fears of a farmland bubble have been spreading for more than a year, fueled by warnings from some analysts and federal monetary leaders.

Leland Strom, CEO of the Farm Credit Administration, told Reuters Tuesday that he viewed the current climate with “extreme caution.”

“I’m not ready to term it an asset bubble. I think we are in an era that warrants extreme caution by those in the industry, the farmers or investors who are purchasing land,” he said.

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