U.S. farm bankers nervous about bullish outlook

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* Farmland values, export boom fueling bullishness

* Lenders worried about bubbles, still nursing wounds

By Christine Stebbins, Reuters

KANSAS CITY, June 11 (Reuters) – U.S. farmland prices have been firming as China’s heavy purchases of the country’s farm exports have fueled a boom in agriculture.

Still, many veteran U.S. farm lenders are nervous about agriculture’s historical tendency to boom-and-bust cycles.

“Everybody is on board with the great demand story. Sometimes that should raise a red flag,” said Michael Swanson, agricultural economist with Wells Fargo & Co, top private bank lender to U.S. agriculture.

“When nobody opposes the story or raises any countervailing argument, you really have to wonder what are we missing.”

Swanson and other bankers at this week’s farm lending conference hosted by the Federal Reserve Bank of Kansas City pointed to several clouds on the horizon amid the bullish outlook for U.S. exporters, already the world’s leading source of food and fiber from grains to cotton to meats.

From a potential farmland bubble to higher interest rates to volatility in grain, meat and cotton prices, cautious lenders appeared to still be licking their wounds from the recent boom-bust effects of the global recession.

“Everybody is in agreement the demand is out there. I think a lot of people in this room are very concerned about the volatility around that demand,” Swanson said. “There are a lot of things that could upset the apple cart.”

Recent surveys from Midwestern Fed banks have shown that farmland values in the U.S. grain belt, the world’s most productive, steadied and began rising again in the first quarter of 2010, as farmers and outside investors bought more.

That key barometer has been joined by China’s buying binge for U.S. grains in particular to boost U.S. farm prices. China, which already consumes more than half of U.S. soybean exports, recently bought its first U.S. corn in four years. This week it also snapped up 80,000 tonnes of U.S. soyoil, boosting prices.

U.S. Agriculture Secretary Tom Vilsack on May 20 said thanks to China buying more than $10 billion in farm goods in the first half of 2010. U.S. exports in the period set a record high of $59 billion and will be revised up for the year.

CLOUDS ON THE HORIZON

But economists and lenders say that’s not the whole story…

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