Farmland Prospects Surge in Midwest.

Nov 11
09:41

2010

rudson tren

rudson tren

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Farmlands might just be starting another bubble, if indicators and high sales of farm-related implements are to be believed.

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Salesmen in Midwest are reporting that good farm yields and crop prices are now driving high sales in farm-related implements,Farmland Prospects Surge in Midwest. Articles raising sales revenues by at least 40 percent this year. Compact tractors and others are on top of the spending list of farmers as they hurry in seizing opportunities brought about by better corn and soybean prices. However, bank regulators are worried that the growing interest in Midwest farmlands and the surge in grain prices could be signs that another bubble is forming on the horizon.

According to the Federal Deposit Insurance Corp., farmland prices have already reached the rise in residential Real Estate prices between the years 2000 and 2004 as they grew 58 percent above their 2000 levels. Analysts, however, expressed their concerns of what would happen in the future to investors once farmland prices fall. Rochdale Securities say that the bubble could pose a risk for agricultural banks that finance farm operations and purchases.

It is believed that the global production crises as well as the emerging large market demands of India and China are affecting the surge in grain prices.

Investors are attracted to farmlands, because they represent a relatively safer investment and afford them low interest rates. But analysts fear that a sudden drop in farmland prices, as what happened in the early 80s, could adversely hit and impact the country’s agricultural banks. If this happens, small banks could find themselves in deep financial trouble and could potentially be cause for another expensive bailout program using taxpayers’ money.

Farm mortgages had already increased bank exposure to up to $132 billion in mid-2010 figures from the $95.7 billion in 2004. A Wells Fargo agricultural economist says that the increase in farm mortgage is a normal reaction of banks to a growing potential and this only shows that banks just want to also seize opportunities as they see them.

In 2009, Wells Fargo had $9.4 billion in agricultural loans, making it the country’s top agricultural lender. But this amount is only a small percentage of its $1.22 trillion assets. Midwestern states like South Dakota, Minnesota and Nebraska have greater number of farm loans and make up almost half of the business of agricultural banks.

However, investors downplay any signs of a bubble, saying that debt rates have remained relatively low. Still, Midwestern state regulators are not keeping their guard down and are still watching the market for any signs of potential trouble.

Despite concerns over a farmland bubble, South Dakota is showing a strong crop yield and crop prices have increase nationwide. Natural factors, however, still remain the biggest concerns for both farmers and investors.