The bidders drove over snow- and ice-covered highways for a chance to own one of the most lucrative properties in the U.S. Midwest: 120 acres of farmland in Greene County, Iowa.
The winner of last month’s auction at St. Joseph’s Parish Center in Jefferson offered $8,200 an acre -- almost $1 million -- for the plot in Scranton Township. That’s 44 percent higher than the $5,701 per-acre estimate for average values in the county as of Nov. 1, according to Iowa State University data.
“It’s reflective of what we’re seeing,” Mike Duffy, an Iowa State economist in Ames, said of the auction outcome. “There’s just not a lot of ground offered for sale.”
Farmers and investors across the Midwest are bidding up cropland at auctions like the one in Jefferson as commodity prices surge. Farmland values in the central U.S. increased the most in at least two years in the fourth quarter, the Federal Reserve Bank of Kansas City said yesterday. The gains are a bright spot in a region where manufacturing job losses have driven down prices of homes and commercial property.
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Prices may continue to climb even after the rise prompted Federal Deposit Insurance Corp. Chairman Sheila Bair to warn in October that a bubble may be forming. Values in Iowa, the largest corn- and soybean-growing state, may jump another 10 percent this year if commodities stay close to current levels, Duffy said in a telephone interview. They climbed 16 percent in 2010, according to an Iowa State survey.
“In the next year to two years, I don’t see a lot right now to indicate that it’s going to take a nosedive,” said Duffy, who conducts the annual Iowa land survey. “What people have to remember is farmland is primarily bought by farmers and they buy it for the long term.”
Demand for Corn
Corn futures rose 52 percent last year on the Chicago Board of Trade, the most since 2006. Global demand grew as inventories fell and warm, dry weather threatened output in Brazil and Argentina, the biggest corn exporters after the U.S. Soybeans rallied 34 percent in 2010, the most in three years, after record Chinese demand for the oilseed. Both commodities are trading close to their highest levels since 2008.Download your FREE Agriculture Investment Guide here
Corn may surge to a record in the first half of 2011, Agrocorp International Pte. said yesterday. The firm joined Rabobank International and Blackstone Group LP’s Byron Wien in forecasting new highs for the grain as demand increases and global stockpiles decline.
John Harder, 64, who owns 4,000 acres and lives in Cedar Rapids, Iowa, is optimistic that land values will climb if commodities extend gains and interest rates stay low.
Bullish Farmers
“I’m bullish because I’m a farmer,” he said in a telephone interview. “I’d buy another farm or two tomorrow if I could buy it right.”Net farm income may increase 20 percent to $94.7 billion in 2011 from $79 billion in 2010, according to a U.S. Department of Agriculture forecast Feb. 14. The 2011 estimate is the second- highest in 35 years when adjusted for inflation, the agency said.
For investors in Corn Belt farmland, the return on land, which includes appreciation and income from renting to farmers, was 14 percent in 2010, according to the National Council of Real Estate Investment Fiduciaries.
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The agricultural economy is doing so well that farmers making good profits have no incentive to sell their land, said Jim McCandless, the leader of UBS AgriVest LLC, based in Hartford, Connecticut, which has 161,516 acres of agricultural property under management valued at $551.6 million.
Limited Supply
“Prices continue to increase due in part to the limited supply,” said Randall Pope, chief executive officer of Champaign, Illinois-based Westchester Group Inc., which manages farm tracts. “There are a number of people who would like to buy these days but there isn’t a lot of product on the market.”Prices jumped 14.8 percent for irrigated cropland in parts of seven states in the fourth quarter from a year earlier, and gained 12.9 percent for non-irrigated land, the Federal Reserve Bank of Kansas City said yesterday in a report on its website.
The bank’s region includes all or parts of Kansas, Colorado, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri. A majority of rural bankers surveyed said land values will climb in the next few months.
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Source: Bloomberg