We’re living in some pretty unprecedented times—or at least per the memory of much of the U.S. public. Unemployment is uncomfortably high. Debt issues in Washington aren’t new, but they seem to be more serious and certainly more frustrating. Of course there are the lingering effects of the housing crash. Commodity and oil prices have set records—and not by just a smidge, but by significant margins.
The one bright spot, depending on whether you’re buying or selling, is farmland values. But those, too, have reached eye-popping levels that beg the question—“Are they sustainable?”
From 2000 to 2010 Iowa farmland increased 160 percent to average $5,064 per acre, according to Iowa State University. The Federal Reserve Bank of Kansas City reports first-quarter 2011 farmland values jumped at least 20 percent in Iowa, Minnesota, Nebraska, Kansas and North Dakota. Prices of $6,000, $7,000, $8,000 an acre for a good-size chunk of tillable acres is not uncommon. On occasion it can take a $10,000- to $11,000- per-acre bid to win the day.
Of course, rock-bottom interest rates, a tight supply of available land and growing ethanol production doesn’t hurt matters. Nor do the ubiquitous projections about rising global food demand for decades to come.
China and India are hungry and someone will have to help feed them. I’m the first to admit that’s not to be taken likely and I don’t think we truly grasp the kind of quantities that will require and the impact it could have.
These days, the 1980s farm crisis comes to mind and there’s a chill of déjà vu in hearing reports of record per-acre farmland prices. It’s valuable to have that sort of safety net. Had there been more folks with intimate experiences of the Great Depression, U.S. consumers might not now find themselves in such a glutinous pickle.
I was just leaving college when the farm crisis was the centerpiece of the agricultural world that I was walking into. It was tough to be starting out and watching good farmers and good people lose their land.
Some argue the thing that’s different this time is there is not same level of speculative interest and outside investors flocking to farmland as in the 1980s. That land purchases today, and for the past several years, have been driven by farmers, many of whom paid cash.
That’s true to a point. It’s also true that some investors are in this market, pushing prices up because farmland offers a better return and inflation hedge than most options today. One Boston investor who buys for himself and 71 clients already owns 65 farms.