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Jim Meade / Iowa City
Senior Advisor

Land Prices Set To Rise

Bankers think the land price top is not in, but do see a slowdown and advise caution.

 

http://www.farmgateblog.com/article/1544/land-prices-are-rising-uniformly-across-the-cornbelt

 

"Summary:
 Land values are uniformly rising throughout the Cornbelt and the Great Plains, thanks to farmers being the primary buyers and to the value of commodities. Higher prices for grain have spurred the most significant demand for land since the 1970’s. However, the higher bids come with warnings about the need for risk management." 

 

I would think these land prices would support more consolidation.  I know as an older farmer with no farming heirs I'm not in the market for more land and I don't see how a young farmer can afford any.

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24 Replies
Nebrfarmr
Veteran Advisor

Re: Land Prices Set To Rise

I see that around here very much so.  There are a few land-hungry BTOs along with outside investors gobbling up the land to where a little guy like me doesn't have a chance.  I have been told by some of the more experienced people on this forum, to expand slowly, buy 40 or 80 acres at a time.  Well, I don't know how you do that, when they don't sell small tracts like that anymore.  On very rare occasions, a quarter section will sell for way more than I could ever get credit to buy, but usually it goes in tracts of a section or more.  When land sells at 400+ acres a parcel, it shuts people like me out.  On a recent sale, there were 17 pivot irrigated quarter sections, all sold in one parcel, and all to the same entity (an investment group).   I'm not trying to sound bitter, just stating things the way they are.  I guess they are looking at land (especially land with water rights) as the next big thing.   I think if I live fairly frugally, I have enough acres spoken for to keep the family fed.  I own some land, and my landlord on the other is one of those guys who would rather get a 'decent' rent, and have someone who takes care of the land as his own, while raising a couple kids on it, than just get top $$$ that he possibly could.  I guess I am lucky that way, when you think about it.  While I don't farm a lot, I have plenty to do, when you add the cattle to the mix.

By the way, since you don't have any kids who want to farm, is it OK if I start calling you 'Uncle Jim'?  Maybe in an Alzheimers moment.......?

 

kraft-t
Senior Advisor

Re: Land Prices Set To Rise

The big question is whether you think that farmland is a good place to invest your money whether your heirs are farmers or nonfarmers.

 

I don't have any confidence in other investment vehicles. So farmland is a favorite of mine but at what price.

 

It's about like holding $12 beans for more when historically beans have been below $12  95% of the time or more.

 

It probably would make sense to sell some land at these prices but where would we put the money? Or where would our kids put the money to use. At least in real estate it is a little less liquid and a bit harder to spend.

 

 

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kraft-t
Senior Advisor

Re: Land Prices Set To Rise

I suppose that is true as long as the smaller parcels are consolidated into bigger units. We are fortunate in Iowa that there are some smaller parcels available. 80 acre plots are not unusual but larger ones as well.

 

Another option is that you and a cohort can go together to buy a piece and divide it. We had a 200 acre parcel for sale in my neighborhood a few years back. I didn't want to take such a bit bite. After it was over with I had a neighbor that indicated that he would have bought a portion of it. So don't be afraid to ask a potential investor to take part in the deal. It need not be a family member but just someone that likes to own land.

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Kay/NC
Honored Advisor

Re: Land Prices Set To Rise

Thso einvestment groups are fairweather friends ot agriculture...that is, they only want us when things are hunky-dory.  One bunch like that owned the Oceanview hog farm that burst a 25 million gallon lagoon spill in 1995, which drove most of the pniderous regs here in NC in the late nineties. 

 

Now, I ask you: What damned idiot would WANT to own a huge hog farm worthy of the name "Oceanview"?  It was a problem waiting to happen. 

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Nebrfarmr
Veteran Advisor

Re: Land Prices Set To Rise

Kraft - not a bad idea, if something like that comes up again.  The only problem will be outbidding the (for now) investment groups who have seen their stock portfolios drop while land came close to doubling, and think that land has no where to go but up.

 

Kay, I agree, they are 'fair weather friends'.  They buy land, and rent it out for the highest rent, with pretty much no consideration except what they get for their 5 year lease.  It does no good trying to explain to them that some people take better care of the land, than others do.  I guess that is where I am lucky with my landlord.  After a previous tenant left gullies, ruts, and washed out pivot tracks, he is willing to take a few less $$ for rent, when he sees the gullies filled & water diverted, the roads fixed, and pivot tracks filled.  He said he never realized how much higher the repair bills were for his center pivot, when the ruts were deep enough to drag gearboxes, than after I got them filled.  The investment guys didn't care about things like that, they said 'that's what the warranty is for'.  I hope they realize in 5 years, they will have fields with the fertility mined out of them, and pivots with double or triple the wear and tear on them, compared to a 'careful' farmer.

 

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Kay/NC
Honored Advisor

Re: Land Prices Set To Rise

The investment guys won't care about resource depletion, unless someone pays them sufficiently to make they give a hoot.  They are in this for the quick buck, not the long haul.  There is nothing of good stewardship in their approach. 

 

You mention the land being mined out...I have lived through a literal raping of the land for mineral assets underneath.  It happened to be on the farm I grew up on, and they wiped the footpath I had trodden to my Grammar's house, every ancient shed and smokehouse, and even teh trees and every property line fence.  Most disorienting....

 

I see elements of this destruction on a less obvious scale all around me wherever I go.  I use that phrase - mined out - to describe the drain of every good thing from rural areas, for the benefit of urban ones.  This includes even our children, in large measure, and that's the loss that hurts the most. 

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smokeyjay
Advisor

Re: Land Prices Set To Rise

Yes, Kraft's idea is a good one.  I would also think that at some point the best wisdom might be to wait the high prices out, allow for a correction before pulling the trigger.  The best cure for high prices has always been high prices, though we often argue with ourselves that this time around is different.  One might argue that we are experiencing a paradigm change that influences prices accordingly, however, one often will not know this to be true until years later.  If you decide to continue and make an investment, make sure this decision will not sink your boat along with everything you own.

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dennymal
Veteran Contributor

Re: Land Prices Set To Rise

I don't think you accurately depict most investors. I farm a tract owned by a person out west, while his ROI is important I have never felt he was just out to get what he could and then move on to another investment. In talking with investors at auctions most of them realize owning farmland is a long term investment. Every land lease I've signed always has a fertility clause as well as some shared maintenance agreement. Looking around my neighborhood I know of several pieces owned by outside investors, whether their managed by a farm mgr or a tenant/ owner one on one relationship. Some of these pieces have been farmed by the same family for 30 plus years. Here at least I have never seen where an investor has tried to flip a piece after a couple of years. A change usually happen when it gets left to heirs.

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k-289
Senior Advisor

Re: Land Prices Set To Rise

I wonder if these" land" and "commodity" prices are current administration's fault   ---  just curious --- 

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