I try to skim a few of the major Mid-West farm cities and the Omaha World-Herald recently had an article on how food demand is driving farmland prices higher.  There was a regional conference in Omaha sponsored by the Federal Reserve of Kansas City.  The meeting brought forth various good nuggets of information about the rising demand for food and how it is affecting farmland prices.

In 2005, the world produced about 7 billion tons of food which is about on average a ton of food per person on the earth.  By 2030, which is only 20 years away, rising population will require another 3-4 billion tons of food to be produced.

This strong increase in demand encourages long-term investors to realize that good farmland is already in production and only marginal farmland will come into production over the next 20 years or good farmland will be taking away by suburban growth.  According to the speakers, this demand will cause farmland prices to continue to increase.

Farmers National Co. of Omaha reported that recent sales of good quality farmland reached $8,000 an acre in Illinois, $7,500 in Iowa and $7,000 in Nebraska.  Demand is high for ground that can grow corn and beans and prices are up since there is so little ground is for sale.

Even grassland values are drawing higher prices.  For example, grassland sold neer O’Neill, Neb. recently sold for $580 per acre, substantially higher than the recent sales range of between $385 and $450 per acre.

As more people in the world move from rural to urban areas, their demand for animal products will increase.  One of the drawbacks of this move is that a pound of beef requires 1,800 gallons of water to grow while a pound of wheat only requires 180 gallons.  We will have to use water more efficiently in the future than we are now to keep up with this demand.

While many factors point toward health agricultural growth, there are serious challenges, including an imbalance in labor, environmental concerns, unwise public policy decisions in some countries and higher food prices that strain developing countries budgets.

The Federal Reserve Bank of Kansas City issued their quarterly report on agricultural credit conditions for the first quarter of 2010.  They indicated farmland values rose due to strong demand and the rebound in livestock prices.  Both farmer and non-farm demand appears to be very good.  Looking ahead, they expect farmland values to hold steady.

However, most district bankers reported that farm income fell slightly in the first quarter, however, they expect higher levels in the second quarter with the year being steady.

Farmland values for the quarter rose about 2% with Nebraska having the highest gains of about 6%, however, Oklahoma and the mountain states were lower for the quarter.  This was the strongest gain in over a year primarily due to the livestock rebound.  Interest rates edged down slightly, averaging 6.6 percent.

In reviewing the long-term chart shown in the report, there have only been 3 quarters that have been negative since 1990.  Two quarters were in late 1990 when the Internet bubble was at its highest and one quarter last year.   Owning farmland has been a very good investment over the last 20 years.  We all hope the trend continues for the next 20 years.

The Federal Reserve Bank of Kansas City puts out a quarterly review of credit conditions in their region.  This region covers Kansas, Missouri, Nebraska, Oklahoma and most of the Mountain States.  I try to give you a recap when it comes out since the information is both timely and interesting.

The most recent report for the fourth quarter of 2009 showed that average farm values in the region were up about 3% over the same time in 2008.  Kansas, Missouri and Oklahoma showed more than a 3% increase, while Nebraska was only marginally higher and the Mountain States actually showed a price decrease.  This decrease was primarily due to the larger concentration of livestock operations in these states which have not fared well over the last few years.

The bank indicated the strength was due to two primary reasons:

• Rising farm income due to both stronger prices at year-end and higher yields, and
• Small supply of farmland available for sale

For the farmland that did sell, more of this went to other farmers rather than investors.  Residential development is almost at a standstill right now and the recession has put a crimp on people being able to buy farmland for recreational purposes.  Also, the bankers noted that more farmland was purchased for cash during the quarter.

Many of the bankers expect farmers to purchase more capital equipment during 2010 than in 2009.  Livestock prices did move higher during the quarter, but they remain slightly under break even levels.

With the price decreases in January, 2010, it will be interesting to see what the next report brings.