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Farmland values surging as crop-price gains spur income

CHICAGO -- Farmland values surged during the first quarter from Kansas to Indiana as gains in crop prices during the past two years bolster income, according to a survey of lenders by regional Federal Reserve banks.

Farmland values surge
A farmer in Dover, Ill., with a tractor and planter. Farmland values surged during the first quarter from Kansas to Indiana as gains in crop prices during the past two years bolster income, according to a survey of lenders by regional Federal Reserve banks. (Bloomberg News)

CHICAGO -- Farmland values surged during the first quarter from Kansas to Indiana as gains in crop prices during the past two years bolster income, according to a survey of lenders by regional Federal Reserve banks.

Midwest farmers in a five-state region saw an increase of 19 percent as of April 1 from a year earlier, including a 27 percent increase in Iowa, the largest U.S. corn and soybean grower, the Chicago Fed reported Tuesday.

Great Plains states posted a 25 percent increase, led by a 39 percent jump in Nebraska and 24 percent in Kansas, the Kansas City Fed report showed.

Corn and soybean futures last year reached the highest averages ever, while wheat was 34 percent higher than in 2009. Net farm income for domestic growers will reach $91.7 billion this year, second only to last year's $98.1 billion, the U.S. Department of Agriculture said on Feb. 13.

"We have had two years of exceptional farm income, historically low interest rates and a lack of alternative investments driving farmland prices," Mike Walsten, the editor of Land Owner Newsletter, a unit of Pro Farmer publications, said by telephone from Cedar Falls, Iowa. "Farm income in 2011 was $30 billion higher than the 10-year average, and that's what's increasing farmer purchases."

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The rally in farmland prices may slow because grains are down this year, Walsten said.

The average corn price may fall 25 percent to $4.60 a bushel in the year that begins Sept. 1, down from an estimated $6.10 this year, the USDA said on May 10.

Wheat prices may fall to $6.10 a bushel in the season that begins June 1, down from $7.25 this year.

"We are probably going into a period of more stability and a leveling off in the land market," he said. "I have seen some sales in Iowa and Illinois recently that were not as strong as I expected. It's not the same zip and drive that we saw in late 2011 or earlier this year."

During the first quarter, Indiana prices advanced 15 percent from a year earlier, Wisconsin increased 13 percent, and Michigan rose 7 percent, the Chicago Fed said. Midwest land values climbed 5 percent from the fourth quarter, and about one- third of the 231 bankers surveyed by the Fed forecast higher values in the second quarter.

"Bidding among farmers was common at farmland auctions, driving up" prices, David Oppedahl, a business economist at the bank, said in the quarterly report.

"Relative to investors, farmers again purchased a higher share of the acres sold in the past three to six months."

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