Investors drive stronger demand for US farmland

Increasing interest by investors, and a return by livestock farmers to profit, has driven strong demand for farms in America's agricultural heartland, ending a slide in ranch prices.

Farmers are facing growing rivalry in farmland land from investors seeking higher rates of return on their money than many other assets, such as bonds, are providing, the Federal Reserve said.

While farmers still remain as primary buyers, several lenders noted a rise in farming sales to investors looking for competitive rates of return on capital, according to a report from the Fed's Kansas City bank, after a survey of states including Kansas, Missouri and Oklahoma.

The trend mirrors that in the UK, where Savills has reported funds of more than GBP7 billion awaiting investment in farms.

The "strong" demand drove the price of irrigated arable land up 2.5% in the quarter, compared with a year before, with non-irrigated cropland appreciating by 2.8%. However, improvement was noted in particular in the ranchland market. While value rose by only 1.6%, this was the strongest growth rate in more than a year.

The improvement was credited to livestock farmers' revived fortunes, an improvement which earlier prompted the American Farm Bureau Federation to declare the sector downturn over, saying producers had achieved two months of profits after two years "during which they consistently lost money".

The Federal Reserve report said that "declining feed cost and rising livestock prices spurred profits in the livestock sector" in the first three months of the year.

While the survey revealed growing pressure on farm incomes in the first quarter, arable growers were taking the hit, and looked likely to continue to suffer.

"Lower crop prices due to the prospect of additional corn and soybean supplies, and an improved winter wheat outlook, trimmed banker expectations for crop incomes," the report said.