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Senior Contributor

The price of farmland

Interesting article here about the rising price of farmland in the USA.

Talks of a sale that brought $10,000 an acre.

Is it a new 'bubble'.

 

The surge in prices has been dizzying throughout the Midwest, with double-digit percentage increases last year in Illinois, Indiana, Iowa, Kansas, Minnesota and Nebraska. In parts of Iowa, prices for good farmland rose as much as 23 percent last year, according to the Federal Reserve Bank of Chicago.

Just a few years ago, farmers marveled as land prices began to rise in response to demand for corn to make ethanol. More recently, soaring prices for wheat, corn, soybeans and other crops have driven the increase.

http://www.nytimes.com/2011/03/04/business/04farms.html?_r=2&scp=2&sq=wegner&st=cse

 

 

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Advisor

Re: The price of farmland

If it bursts, it was a bubble.  only way to know for sure is in the rearview mirror. 

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Senior Advisor

Re: The price of farmland

Everyone has a mood change every 10 years in life---we will see----bubble gum or bubble burst---I would persoally take the 800k land vs. 500k house---just in process of lower rate refie---lot different than 4 years ago---to big to fail have really changed the process as normal the little honest guy picks up the tab---

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Senior Advisor

Re: The price of farmland

Some of the sailes in NW Iowa are specifically as a place to apply manure.  The $13,500/acre near Sioux Center is one example and some of the $7k-$8k deals are the same.

 

Interestingly, many of these sales seem to be for cash to farmers.  Makes you wonder.

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Veteran Advisor

Makes sense

IF you think $7 corn, 10% inflation due to Washington not being able to come to grips with its spendthrift ways, $100 per barrel oil with no substitutes, and no new land being brought into production are all written in stone.

 

With this scenario, land is actually undervalued and should gain another 50% or more.

 

On the other hand, if you think corn will regress to a $5 price, or less, once supplies become adequate again, the tea party crowd will put a muzzle on the checkbook in DC, the world will find alternatives to oil and biofuels, and the bull dozers in Indonesia, Brazil, and everywhere else will  be rolling and  creating as much additional land as the USA currently has in rowcrops.....also that irrigation companies are not lying to me when they say much of their activity is around the world...well maybe we had better hang on to our hats.

 

I watched an 80 sell for just at twice as much per tillable acre as the 160 laying fence row to fencerow to it sold for 18 months earlier last week. So I can see the strength in the land market. I think I will sit this hand out and wait for new cards before I play again.

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Friend

Re: The price of farmland

I just bought my first 80 this past month, paid $3500/acre in SWMN. Got a young farmer loan at 4.875% intrest. I won't make much if anything for 30 years, but the way i see it, if i didn't buy it someone else would.

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Frequent Contributor

Re: The price of farmland

Are land prices the new bubble?   All signs say yes.  High grain prices (another bubble) and low interest rates have put money in the pockets of grain farmers.  In addition, the ROI on farmland looks good to outside investors at this time.  Pit farmers with money against against other farmers with money and throw some investors in for good measure and you have the makings of a bubble.  

 

If corn goes back to $3.50, beans $8.00 and interest rates 10% or more for an extended period of time we will see land prices go south quick.  We know it is just a matter of time until interest rates rise.  Grain production will expand significantly this year.  Just in my little corner of the world there will be over 600 acres of hay and pasture land converted to cropland.  It is not Corn Belt type land but will produce 150-200 bu corn and 50 bu beans in a decent year.  

 

A good crop year worldwide will let some of the air out of the grain price bubble and the resulting land bubble.  Two good years will be the end of the high priced binge for grain farmers and will result in some bad hangovers.      

    

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Veteran Advisor

Re: The price of farmland

A new record, for McLean County, Illinois, farmland was set this week. Guess the price. Give up? The 36-acre tract sold for $11,519 per acre. Anybody live around there to hear about this? I understand it's considered very good ground. It was purchased by an investor in McLean County.  No matter, the prices just keep going to the moon.

 

Well, guess what, the government is concerned of a farmland bubble forming. This week, a symposium, focusing on farmland prices, was held in Washington. The concern is the event of the 1980's will be repeated when land prices dropped 27%. This caused the 'Farm Crisis' and an eventual government bailout of banks and millions upon millions of write-offs.

 

According to a Reuters newswire story, the debate is about whether farmers are more financialy stable today vs. the 1980's. At that point, I'll stop and ask you what your perspective on this is? Are you leveraged less now than your 1980 balance sheet showed?

 

Thanks,

 

Mike

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Reader

Re: The price of farmland

Who are we going to have farming this high priced land--- Corporations??   The young farmer is not going to be able to even think of getting into farming.  Its a good thing I am on the other end of things and have enjoyed a life of farming even though I have been through some hard times it is nothing like it is going to be in the future.

 

Comment 2:

 

There is a building now where crops are being sold on the first floor.  The upper floors are where they raise the crops.  Doors are kept closed to keep disease from moving from floor to floor.   This maybe the answer to the land problem.

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Honored Advisor

Re: The price of farmland

Actually, this has been a concern in America's ag past, too.  It was part of the policy formulation in quota-based commodity controls in tobacco and peanuts, cash crops in the South, for two examples.  The exchanged value for accepting limits on production was price supports. 

I read this in that book on ag history that I mentioned here not long ago.  That is giving me a broader perspective on this situation...and maybe that will help me process this whole economic concern better when I get further into that study. 

Policy will at some point likely dictate that there be some allowance for young farmers to enter the profession.  This usually comes in the forms of either incentive or disincentive. 

Another thing that occurs to me is that there has got to be some point at which - with crop commodities beign so lucrative now - that CRP is no longer an attractive alternative for land use.  Whereas USDA once bought land in order to idle it, now, it leases it long-term in conservation programs. 

Of course, with many more acres chasing the same supplies of seed and fertilizer, it will be interesting to see where the breakevens fall for any given acre, as supply'/demand price hikes for inputs drive production costs up, too.  Some will certainly still remain marginal for cropping purposes. 

Look for more urban ag and organic ag incentives?  Politically correct and answering a certain demographic of political constituency, which tends to be a very vocal one.  You can start that kind of an enterprise on very minute acreage, but it has to be in the right place...near-enough to a big-enough city. 

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