Farmland values may extend record, banker chief says

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Record-high U.S. farmland values may keep rising as global demand for agricultural products increases, according to S. Joe DeHaven, the chief executive of the Indiana Bankers Association.
Farmland will “continue to increase, but at a lesser percentage than what is has been the last few years,” DeHaven said in an interview at an agricultural-lending conference in Indianapolis Monday. “I’m always reminded by the old adage that they’re not making any more land.”

For the best farms, “there’s probably more dollars chasing that than there is land available,” he said.

The average value of an acre of U.S. farmland climbed to a record $2,350 in 2011, from $737 in 1980, according to Department of Agriculture data. Farmland values in Illinois, Iowa, Indiana, Michigan and Wisconsin rose 4 percent in the second quarter and 17 percent in the year ended June 30, the Federal Reserve Bank of Chicago said in a report Aug. 17.

The Federal Reserve said last week that the benchmark interest rate will remain near zero percent until at least the middle of 2013 if unemployment stays high and the inflation outlook is “subdued.” That means there aren’t many places for investors to put money that will “be secure,” DeHaven said.

Farmland may “be a great hedge against inflation at some point, a hedge against just not being able to get a return anywhere else,” he said.

Corn prices this year are averaging about $6.90 a bushel in the U.S., a record and more than double the average of the past decade. Corn is the biggest U.S. crop, valued at $66.7 billion in 2010, followed by soybeans at $38.9 billion, USDA data show.

A “fair number” of community banks in Indiana and some larger banks are trying to expand their agriculture business, DeHaven said. Higher crop yields from improved technology and efficiency in farming, combined with high prices, have made agricultural lending “the best portfolio that any bank has today,” DeHaven said.

U.S. net-farm income will jump 31 percent this year to a record $103.6 billion, the Department of Agriculture forecast in a report on Aug. 30. The increase comes from higher crop and livestock prices, and rising receipts from sales of farm commodities.

Most bankers aren’t over-lending on land, so the risk of losses isn’t significant if prices drop to a “more normalized level,” DeHaven said.



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