Northern U.S. farmland values leveling off

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Prices of top quality farm land in the northern U.S. Midwest and Plains stayed firm in 2013, but there were clear signs the market for average quality crop and grazing land was leveling off, a lending unit of the government-linked Farm Credit System said on Wednesday.

"After years of a steady rise led by lower than average U.S. yields, strong domestic and international demand for commodities, low interest rates and solid profit margins, we're seeing the rate of price increases leveling off for farmland in some areas we serve," said Mark Jensen, senior vice president at Farm Credit Services of America, an Omaha-based FCS subsidiary and a leading lender to farmers and ranchers in Iowa, Nebraska, South Dakota and Wyoming.

Jensen said the bank's review of 3,500 farm land transactions in 2013 in its four states and its annual review of 65 "benchmark" farms tracked for 30 years, "suggest the market for farmland is leveling off and in some areas softening."

In top corn and soybean producer Iowa, benchmark farm land values finished up 3.4 percent for calendar 2013. But that was after falling 2.8 percent in the last six months of the year, Jensen said.

In addition, Iowa land prices fell 3.3 percent in the fourth quarter compared with the third quarter. Over the last five years, Iowa farm land prices were up 98.3 percent and over the last 10 years up 282.1 percent, based on the bank's study of 21 Iowa benchmark farms.

In Nebraska, another top corn and wheat producer, farmland prices finished up 8 percent for calendar 2013, but were up just 0.7 percent in the last six months, based on 19 benchmark farms. In South Dakota, a rising corn producer, farmland prices rose 17.6 percent for the full year, but just 7.2 percent in the last six months, Jensen said, based on tracking of 23 benchmark farms.

Jensen said the bank's analysis of more than 3,500 farmland transactions in 2013 showed that buyers were clearly adjusting to lower grain prices after the record U.S. harvest. Those prices will reduce the record profit margins experienced the past few years.

"Even though the number of public land auctions in 2013 was down 25 to 30 percent compared to 2012, auctions were often well-attended with multiple bidders," Jensen said. "The number of auction 'no sales' in Iowa was 6.7 percent in 2013, an increase from 3 percent in 2012. Some sellers may have expected higher prices than the auction high bid. Local farmers continued to make most of the purchases."

The Farm Credit System and its subsidiaries handle more than half of all lending to farmers in the United States, with the Omaha unit alone holding more than $20 billion of loan assets.

Jensen said the bank's analysis suggest most farmers are positioned to weather a moderate downturn in land prices.

"Since 2008, FCS America has used a risk management strategy that includes a cap per acre on the amount of money we'll loan for land purchases," Jensen said.

"We've been using a long-term sustainable value approach to projecting repayment and lending levels based on corn prices closer to $4.50 per bushel versus the prices of $7 or more that some farmers were receiving in 2012.

"Their balance sheets and working capital levels are generally in a position of strength, and they have put a significant amount of equity into land purchases," he added.

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