Soaring Farmland Prices in U.S. Midwest Bring Fed Scrutiny of Rural Banks

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http://www.bloomberg.com/news/2011-10-06/soaring-farmland-prices-in-u-s-midwest-bring-fed-scrutiny-of-rural-banks.html

When regulators come knocking at the Bank of Newman Grove, Nebraska, inquiring about loan risks, Chairman Jeffrey Gerhart has a “stress test” ready to show how his portfolio would fare if rural land prices dropped 25 percent. Or 50 percent. Or 75 percent.

“I hope it’s not going to go to heck in a handbag out here, but this allows us to look at those worst-case scenarios,” said Gerhart, a fourth-generation banker in the 800-person town two hours west of Omaha, deep in the heart of Nebraska’s corn and soybean belt. He began stress testing his bank’s assets, about 90 percent of which are agricultural, in the last two years after prodding from staffers at the Federal Reserve Bank of Kansas City.

Farmland prices in Nebraska rose 30 percent in the second quarter from a year earlier, according to a survey by the Kansas City Fed, driven by soaring farm income from elevated agriculture commodity prices and record-low interest rates. That’s the high end of increases in cropland valuations of 8 percent or more throughout the region stretching from Oklahoma to North Dakota and from Nebraska to Michigan, according to surveys by three Federal Reserve banks. The Fed banks -- Kansas City, Chicago and Minneapolis -- oversee about three-quarters of the nation’s farm banks.

[unhappycamper]

1. I suspect the Keystone pipeline is what's driving prices up. n/t

[FarCenter]

3. No, its the demand for corn for ethanol production

Over half the corn crop is now converted into fuel.

Pipelines take very little land -- the right of way is very narrow.

[L. Coyote]

4. What BS! Very high profits from growing crops is actually making the farmland worth more than the

upper 2% were paying to have a 1,000 acres of hunting land of their own. Not long ago, the Bush tax cut beneficiaries were driving land prices too high for farmers. This is a welcome change for the farmer, but it is also risky. High yields are cyclical in the Midwest and a dust bowl decade would bankrupt the land buyers who depend on the land's productivity to pay for it..

[Occupied1]

2. great depressionn revisited, farmers going bust & speculators driving up prices