Low interest rates and surging agricultural income have helped send U.S. farmland prices to a record, a government report showed.
While “a speculative bubble forming in farmland markets cannot be ruled out,” the gain in value during the past two years has been supported by fundamental growth in farm income, the U.S. Department of Agriculture said Wednesday in a report.
“Historically-low interest rates are likely a significant contributor to farming’s current ability to support higher land values,” USDA Economic Research Service analysts including Cynthia Nickerson said in the report. “Increases in interest rates would likely put downward pressure on farmland values.”
Net farm income at record levels has helped agricultural land weather the real-estate crisis that has hammered urban values, the analysts said.
“Trends in farm incomes, cash rents and interest rates suggest that farmland values were supported by farm earnings,” the analysts wrote. “But there have been periods of imbalances in the recent past.”
The average value of an acre of U.S. farmland reached a record $2,350 in 2011, the USDA said in August. Midwest prices measured by the Federal Reserve Bank of Chicago rose 22 percent last year, the biggest annual increase since 1976, while the Kansas City Fed said cropland in its region rose 25 percent and ranchland gained 14 percent, according to reports released earlier this month.
Farmland values in Iowa, the biggest producer of corn and soybeans, surged 32 percent to a record average of $6,708 last year, according to an Iowa State University survey of real- estate transactions released in December.
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