Corn and soy prices revival in US Midwest to decline

A revival in farmland prices in America's corn and soy powerhouse states is expected to decrease, a Federal Reserve survey showed, flagging weakness in the dairy sector.

Farmland values in key Midwest states, including Illinois and Indiana, rose by 4% in the first three months of 2010, compared with the same period a year before, a Federal Reserve survey showed.

The increase, the strongest since the last quarter of 2008, was led by Iowa, America's top producer of both corn and soy, where values rose by 8%.

However, the vast majority of bankers surveyed for the report expected "stable" prices in the April-to-June period, according to the report, noting that bankers conveyed a stronger sense that farmland values would remain the same in the second quarter of 2010.

The first quarter price revival was led by farmers, who accounted for an increasing proportion of purchases. However, the improvement defied weak profitability for many farmers, especially in the dairy sector, a softness evident in the worst loan repayment rates for seven years.

A report from the University of Illinois at Urbana Champaign earlier this week said that milk prices had, after reviving late in 2009, retreated back below breakeven in February.

Mike Hutjens, a university dairy specialist, blamed the decline to large inventories of dairy products, sluggish exports and the impact of relatively high rates of US unemployment on demand.

Dairy farmers lost US$800-1,000 per cow last year, Hutjens said.