English: Cobs of corn
English: Cobs of corn (Photo credit: Wikipedia)

In recent years strong global demand for food and biofuels has been pushing crop prices higher. The drought has helped, not hindered, profits. For farmers able to produce corn (maize), it raised prices dramatically. The average price of corn was about 20% higher last year than in 2010, and reached $8.49 a bushel (25kg) in August. For everyone else crop-insurance payments have stepped in, reaching a record $14.2 billion in payments in mid-February, a figure that is expected to go on growing a bit as insurers finalise the claims. This year, according to a report from the USDA on February 11th, farm profits may rise by 14% to $128 billion, the highest in real terms since 1973.

 

As crops are bringing in higher prices, and with interest rates at historic lows, farmland has become increasingly valuable to investors. Prices have been rising surprisingly fast. According to a new report by the Federal Reserve Bank of Chicago, prices in the Midwest leapt by 16% last year. Moreover, 2012 was the third consecutive year of big jumps in agricultural land values, and the increase was the third-largest since the late 1970s. Between 2010 and 2012 values rose by a cumulative 52%, matching the gains of 40 years ago.

 

Land values in Iowa, the biggest corn and soyabean producer, jumped 20%, the most among the five big agricultural Midwestern states (Illinois, Indiana, Michigan and Wisconsin are the others). The Federal Reserve Bank in Kansas City, which covers a different area, also reports a 20-25% increase in farmland prices from a year ago.

 

Such frothy numbers are drawing many comparisons with the farmland boom of the 1970s, which was followed by a bust in which land prices fell by 40% from their peak. In July last year Brent Gloy of Purdue University in Indiana told a symposium on farmland prices that increases were on a par with the most dramatic seen in the past 50 years. The rapid growth has already worried regulators, and as early as 2010 the Federal Deposit Insurance Corporation, which insures bank deposits and monitors the industry

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