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Subject U.S. Farmland Values Reach Record on High Crop Prices
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Original Message Aug. 4 (Bloomberg) -- U.S. farmland values are at a record high even as the rest of the country suffers the worst housing crisis since the Great Depression, with the highest crop prices ever pushing up agricultural real estate.

The value of all land and buildings on farms averaged $2,350 an acre at the start of this year, up 8.8 percent from a year earlier, the U.S. Department of Agriculture said today in an annual report. Surging corn, wheat and soybean prices boosted values in the Northern Plains, which includes Kansas, Nebraska, North Dakota and South Dakota, by 15.5 percent, the biggest increase in the country, according to the report.

The boom reflects high commodity prices that may push net farm income to $92.3 billion this year from $88.7 billion last year, according to the USDA. The gains make farmers more likely to buy fertilizer and seeds from Monsanto Co. and Agrium Inc. and make new investments in tractors and trucks, said Bruce Babcock, director of the Center for Agricultural and Rural Development at Iowa State University in Ames.

``It creates a better balance sheet, that's for sure,'' he said.

Expensive New England

The most expensive farmland in the U.S. was in Massachusetts at $12,200 an acre, followed by Rhode Island and Connecticut. The least expensive was in New Mexico, where land prices averaged $630 an acre. Northeast states were the most expensive of the 10 regions in the lower 48 states tracked by the USDA, with an average price of $5,080 an acre.

The least-expensive area remained the Northern Plains, at $1,110 an acre. Values grew fastest in South Dakota, where prices jumped 21 percent to $990 an acre.

Wheat soared 77 percent last year on the Chicago Board of Trade while soybeans jumped 78 percent and corn rose 17 percent. New highs reached in all three crops this year make 2008 likely to surpass 2007's record values, Babcock said.

The farmland gains come as the rest of the U.S. economy suffers from falling property values. Home prices have fallen the most since the 1930s, according to the National Association of Realtors. Meanwhile, the crop-price increases benefiting farmers have helped drive food inflation to an annual rate of up to 5.5 percent, according to the USDA. Food costs are rising at the fastest pace since 1989, compounding woes for the rest of the economy.

The slumping broader economy may constrain farmers who worry that commodity prices are in the midst of a bubble similar to what housing and technology have gone through in the past decade, said Bob Young, chief economist with the American Farm Bureau Federation, the biggest U.S. farmer group.

`Wealth Illusion'

``Farmers have been very loathe to take on a lot of additional debt,'' Young said in a telephone interview. ``Some of them may be like anybody else. There's a `wealth illusion' that goes with high prices that may make them more open to spending. Many are still worried about it being an illusion, though.''

The USDA report divides farmland values into cropland and pastureland categories. While cropland rose 10 percent to $2,970 an acre in 2007, pastureland rose 6 percent to $1,230 an acre, as gains in Plains and corn-producing states were offset by losses in southeastern states. Livestock prices did not perform as well as crops last year, with cattle futures up 6.4 percent and hogs down 6.2 percent.

Cattle have gained 12 percent this year on the Chicago Mercantile Exchange while hogs are up 30 percent.

Rising Rents

The report also tracks rates for land that's rented for farming. Rents for farmland rose 13 percent last year to $96 an acre while pasture fees rose 8.3 percent to $13 an acre. Because of high demand for additional farmland and the high cost of buying, farm-rental prices may rise 20 percent to 30 percent in 2009, said Murray Wise, chief executive officer of Westchester Group Inc., a farm-asset management company based in Champaign, Illinois.

``There's a lot of under-leased land in the Midwest,'' Wise said.

[link to www.bloomberg.com]
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