Farmland prices in the U.S. Plains states rose 25 to 30 percent from a year ago, reaching record highs as strong farm income raised by higher grain prices heightened demand for farmland, according to the Federal Reserve Bank of Kansas City. The bank just released its 1st Quarter 2012 Agricultural Credit Conditions report.
Last week, representatives of rural lending institutions told a House Ag Subcommittee that they’re concerned that farmland prices have inflated to a point where they face increased risk if rising farmland values suddenly crash.
In the Kansas City Fed report, the value of non-irrigated crop land is reported jumping 25 percent, while irrigated farm prices jumped more than 30 percent from the first quarter of 2011 to a new high for the bank’s quarterly bankers’ survey. Ranchland values rose 16 percent as high feed costs lifted the demand for pasture.
When the housing market bubble burst several years ago, banks and other lending institutions took a major economic hit, and taxpayers found themselves on the hook for billions of dollars that was needed to bail out lending entities – like Fannie Mae and Freddie Mac.
At the subcommittee hearing, Nebraska Bank of Newman Grove Chairman Jeff Gerhart testified on behalf of the Independent Community Bankers of America. He was asked by lawmakers whether he sees any similarities between rising farmland values and the housing bubble from a few years back, here’s his response.
If farmland prices fall like they did in the 1980’s, taxpayer money could be needed to make lenders whole again, but not in amounts nearly as high as the housing lender bailout.
Gerhart encouraged the committee to keep and eye on the situation.
The KC Fed surveys 235 bankers in its district, an area that includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, the northern half of New Mexico and the western third of Missouri.
Source: Kansas City Fed, Reuters