Feb. 16 (Bloomberg) -- Farmland values in part of the U.S. Midwest rose last year at the fastest pace since 1976 as prices surged for agricultural goods ranging from corn to dairy products, according to the Federal Reserve Bank of Chicago.
The value of farmland during 2011 gained 22 percent in the seventh Fed district, which includes Iowa and most of Illinois, Indiana, Michigan and Wisconsin, the regional bank said today. The value reached a record both before and after adjusting for inflation, according to 205 surveys of agricultural banks.
“The year 2011 may go down in the annals of U.S. agriculture as a once-in-a-generation phenomenon,” David B. Oppedahl, an economist at the Chicago Fed, wrote in a report. “Undergirding the huge upward movement in farmland values was an unusual shift up in agricultural prices across the board.”
The boom in farmland contrasts with a depressed U.S. housing market, which Fed Chairman Ben S. Bernanke has said impedes the U.S. expansion. Kansas City Fed President Esther George warned last month that farm prices may go bust.
“Farmland values are soaring to unprecedented levels,” George said in a Jan. 10 speech. “I hear from many well- informed, concerned voices across our region wondering whether this could be a bubble.”
“These types of events have played out in the past, and the results were not kind to the industry involved or its banks,” she said.
Bankers expect farmland prices to continue surging. Some 43 percent of respondents said agricultural land will rise this quarter, compared with the 2 percent who expect a decrease, according to the Chicago Fed survey.
Credit conditions for agriculture in the region also improved last year. Loan repayment rates for non-real-estate farms surged in the fourth quarter, while interest rates on agricultural loans dropped during the period, the report said.
Corn and soybean price gains drove profitability in farming nationwide, Oppendahl said. Even so, swings in commodity prices remain a risk for farmland owners, he said.
“Wide swings in prices make risk-management strategies even more vital for agricultural enterprises, whether or not there is a higher level for agricultural prices in the era ahead,” he said.
--Editors: James Tyson, Christopher Wellisz
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