U.S. Midwest farmland values rose 25 percent year-on-year, according to reports released this week by the Federal Reserve Bank's Chicago and Kansas City branches, but the domestic housing bubble and changes in demand still call for caution.
The documents also said Chicago's Q3 increase of 7 percent matched its highest quarterly gain since 1977, while predicting the agriculture boom in the two districts would continue in Q4.
In general, the reports found financial conditions for agriculture were currently very favorable, as interest rates on real estate loans had declined to a record low.
Moreover, loan repayment levels had also increased, indicating that farmers had more cash at their disposal to pay back debts, the reports said.
However, banks reported a slight increase in the amount of collateral required for loans in the third quarter, the reports said.
According to Wallace Tyner, professor of Agricultural Economics at Purdue University, the rising collateral requirements are representative of tighter lending conditions following the recent U.S. financial crisis, as banks are trying to avoid repeating practices that led to the 2007 housing bubble.
"This is a boom, and whether it's a bubble or not we'll see -- but any time there's a boom you do get more interest from outside," Tyner told Xinhua in an interview, speculating how the favorable Midwestern agricultural environment could benefit investors who otherwise would be disillusioned by a weak housing market and unstable global stock markets.
"People are looking around at land and saying well all this other stuff is giving me nothing, at least I've got a shot at getting something for land. So in a sense land has become more attractive because the other things are less attractive," Tyner said.
The boom is an encouraging sign in an otherwise slow American economy, but Tyner noted it was also important to remember the factors responsible for the agricultural market growth and how they could change in the future.
One of the basic drivers for higher land values in general is higher crop prices.
The reports found that despite a brief price slide following the European debt concerns, corn and soybean prices in October registered a 37 percent and 17 percent increase from last year.
Additionally, Iowa, another major U.S. corn and soybean producer, boasted a 31 percent increase in cropland values, the greatest increase in the entire Chicago Fed region.
Tyner, the professor from Purdue University, said although the Midwest agricultural figures are worth celebrating, a long-term boom is subject to debate, he said, adding that only time can tell how things would work out.
For the immediate future, however, confidence remains high, as 39 percent of the 216 bankers responding to the Chicago Federal Reserve Bank's survey estimated land values would continue to rise in Q4.
The United States is the world's largest agricultural exporter. According to the U.S. Department of Agriculture, exports in 2010 totaled over 108 billion U.S. dollars, and the 2011 figure already exceeded 137 billion dollars.