Feb. 14 (Bloomberg) -- Farmland values in the U.S. Midwest jumped 16 percent last year, the third-largest annual gain since the late 1970s, as a prolonged drought drove up crop prices, the Federal Reserve Bank of Chicago said.
Values in Iowa, the top U.S. corn and soybean producer jumped 20 percent, the most among the five Midwest states, the Chicago Fed said today in a report. Illinois, Indiana, Michigan and Wisconsin posted gains of at least 10 percent. The rally picked up at the end of 2012 with farmland climbing 7 percent in the fourth quarter from the third.
The most-severe U.S. drought since the 1930s reduced the production of corn, the biggest crop, for the third straight year, sending the price of the grain to a record $8.49 a bushel in August. U.S. farm profit this year may rise 14 percent to a record $128.2 billion from 2012 as crop-insurance payments reach an all-time high, the U.S. Department of Agriculture said in a report on Feb. 11.
“2012 marked the third consecutive year of significant jumps in agricultural land values,” David B. Oppedahl, a business economist at the Chicago Fed, said in the report. “Recovery from the drought will remain a key factor in 2013, as the movements of drought-influenced crop prices will affect both crop farmers and livestock producers.”
Farmland values, adjusted for inflation, rose 14 percent in 2012, the third-highest in 35 years, according to the report. About 71 percent of the 212 survey respondents projected farmland values will be stable in the first quarter of 2013, while 28 percent forecast an increase.
Average interest rates reached new lows in the fourth quarter, the Fed said. As of Jan. 1, borrowing costs for-farm operating loans were 5.03 percent, and the rate for agricultural real-estate loans was 4.7 percent.
--With assistance from Jeff Wilson in Chicago and Alan Bjerga in Washington. Editors: Patrick McKiernan, Thomas Galatola