Reuters / Average farmland prices in the U.S. Plains states jumped as much as 25 per cent in the third quarter, setting new highs as demand remained strong, according to the Kansas City Federal Reserve.
But the rate of gains slowed down from the torrid pace of the past two years.
“Drought conditions had little effect on the demand for farmland, and bankers expected sales to remain solid even with a seasonal upswing in the number of farms for sale after harvest,” according to the survey of 241 regional bankers in Colorado, Kansas, Nebraska, Oklahoma and Wyoming, and parts of New Mexico and Missouri.
Low interest rates trumped weather concerns, the bank said.
“Lenders continued to lower average interest rates on both farm real estate and farm operating loans to attract borrowers in an extremely competitive lending environment,” the bank said.
However, drought and escalating feed and fuel prices have boosted demand for farm loans.
Skyrocketing land values have stirred banker fears about the possibility of a ruinous farmland bubble like the one seen in the 1980s U.S. farm crisis, when overleveraged farmers lost their land as interest rates jumped. But farmers are carrying much less debt today, thanks to record incomes in recent years.
“It’s still a hot market,” said Jason Henderson, chief economist for the KC Fed. “I think people are expecting prices to hold at least until the first part of the year. Right now what we are seeing is the demand is still very strong, even though there is more land being put on the market.”
The survey found ranchland is up 14.3 per cent, irrigated cropland up 21.9 and non-irrigated cropland up 24.4 per cent. Rental rates for both crop- and ranch-land were up 12 per cent.
Nebraska posted the biggest jump in land values, with non-irrigated farmland prices up 30.2 per cent.