Fed Reserve: Boom in Farmland Prices May Have Peaked with Drought

By CnAgri2012-08-17 19:46:50 Print

The price of prime farmland in the drought-hit U.S. Midwest grain belt rose 1 percent in the second quarter, the smallest quarterly increase in two years, the Federal Reserve Bank of Chicago said on Thursday.

But while the district's worst drought in nearly a quarter century will dramatically shrink soybean and corn output, land values this quarter were not expected to fall, the Fed said in its quarterly survey of 205 bankers in the district, reports Reuters.

The Chicago Fed district includes the heart of the U.S. Corn Belt states of Iowa, Illinois and Indiana, and parts of Wisconsin and Michigan.

"The drought did not seem to have stifled all the momentum of rising agricultural land values," the Chicago Fed said in its August Ag Letter.

Just four percent of those surveyed expected farmland values to drop this quarter; more than 70 percent see farmland markets leveling off.

"Coming after several years of farm income that were better than average, the drought should not reverse the gains in farmland values, but there could be a pause while expectations about future earnings from crop production adjust to the short-term effects of this summer's drought," the Fed said.

The value of district farmland rose 15 percent from a year earlier, the report said, a rise that "seems modest only in the context of exploding farmland values over the past few years."

In the Chicago Fed district, Iowa and Illinois combined produce about a third of the domestic corn and soybean crops.