Far-Out Farmland Prices

It’s good to be an American farmland owner in the current $136 billion farm real-estate market. For example, two Iowa properties sold for a whopping $16,000/acre this past fall.

Farm value has tripled during the past decade — increasing the third quarter of 2011 by 25 percent in the Midwest — incited by food-price speculation, grain exports, ethanol production and borrowing costs at near-record lows.

“We have set all kinds of records,” said Bruce Brock of Brock Auction Company, Le Mars, Iowa, in author David Hest’s Farm Industry News story.

Between 2008 and 2009, Midwest farmland prices stabilized but then prices quickly increased — culminating in a two-year increase with reports of as much as 50 percent in some areas. Since 2010, Ohio has experienced a per-acre-value increase of $4,300 or 7.5 percent according to the USDA. Illinois has fared best of the Corn Belt states — experiencing a 16.3 percent increase, equating to a per-acre-value increase of $5,700.

However, notable land values bring headaches, such as competing with the emergence of offshore buyers and ensuring the sound transfer of farm estates to the next generation; succession planning becomes significantly more important. Other issues are increased property taxes for owners and land shortage for potential purchasers.

Additionally, many fear that these values won’t last and people with farm investments may endure economic loss.

“But lessons learned in the ’80s, combined with the strong balance sheets of most farmers, weigh against a similar calamity in the near term, observers say,” stated Hest.

Interest rates and commodity prices are the primary factors affecting the price of land and interest in purchasing it. Current commodities are strong and if food prices remain the same, their prices will stay steady. Interest rates are minimal.

The Farm Credit System (RDETCDET), created by Congress in 1916, increased its share of lending in the $136 billion farm real-estate market to 45 percent from 41.5 percent in 2007 and 35 percent in 2000, according to the USDA.

“We continue to see ag lending as a good opportunity for us,” said Robert Merck, senior managing director of real estate and agricultural investments at MetLife in Hest’s article. “It has performed well.”

Farmers would be wise to invest in property after a thorough assessment of current capital, debt and future projections with credible financial advisers.

Photo obtained from: Farm Industry News

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