Kansas City Fed sees commodities, land values remaining high
A report published by the Kansas City Federal Reserve Bank sees continued high commodity prices and, thus, continued high land values at least for the near term.
… As crop prices pushed toward record highs in 2011, farmland values have followed. After slowing somewhat during the 2007-09 recession, cropland has surged since 2010, with values jumping 20 percent or more compared to a year earlier. In some cases, fertile land that sold for $6,000 an acre in 2009 is now going for $12,000 an acre.
But, this surge in farmland values has raised some concerns about its sustainability. Recent figures from the U.S. Department of Agriculture show that while farmland values have risen 40 percent since 2004, cash rents have risen only 17 percent. …
“The apparent decoupling of land values and rents suggests that other factors could be driving the farmland value surge,” said Jason Henderson, vice president and Omaha branch executive at the Kansas City Fed. “One of these factors could be interest rates, which remain at historically low levels and are likely helping drive the rise in land values.”
Despite strong export demands and tight supplies, corn and wheat prices have doubled since June 2010. According to the report, much of the export demand is due to countries such as China, “where rising incomes, improved diets and a weaker dollar are making U.S. agricultural exports more attractive.”
… For now, agriculture market observers don’t see a high probability that crop prices will fall soon. … As a result, aggressive bidding at land auctions appears to remain in play for at least the near term. …
The full report is embedded below:
Growing Value: Is the farmland boom sustainable?