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Low interest rates and strong commodity prices helping fuel farmland demand

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The escalation in farmland prices in the Midwest, with some sales reported at more than $10,000 per acre, and in the Far West with a few in the $15,000 range, has seen a lot of money flow into agricultural land. While Mid-South prices haven’t attained anywhere near those astronomical levels, prices have risen to levels that would’ve been unimaginable 10 years ago.

Strong farm incomes continued to fuel demand for farmland during first quarter 2012 in the Kansas City Federal Reserve Bank region that includes several Midwest and Plains states, reflecting the upward trend that has been under way nationally the past few years as commodity prices have hit record levels.

For the first time since the bank’s farmland values survey began in the late 1970s, the annual value of cropland in the region has risen more than 20 percent for two consecutive years.

The escalation in farmland prices in the Midwest, with some sales reported at more than $10,000 per acre, and in the Far West with a few in the $15,000 range, has seen a lot of money flow into agricultural land. While Mid-South prices haven’t attained anywhere near those astronomical levels, prices have risen to levels that would’ve been unimaginable 10 years ago.

All this has led to ongoing chatter about a speculative bubble in farmland and worries about a correction if commodity prices should have a sharp setback or economic conditions worsen and curb demand.

But for the time being, those wanting to sell usually have no trouble finding willing buyers — though often as not, buyers are investors rather than established farmers wanting to expand.

A recent USDA Economic Research Service study, “Trends in U.S. Farmland Values and Ownership” (http://www.ers.usda.gov/Publications/EIB92/EIB92.pdf), looks at some of the factors behind the surging interest in farmland.

“Trends in farm incomes, cash rents, and interest rates suggest that farmland values were supported by farm earnings in 2009 and 2010,” the report says. But as recently as 2005-08, “farming income was insufficient to service debt on real estate purchases.” And while “historically low interest rates are a likely significant contributor to farming’s current ability to support higher land values, increases in interest rates would likely put downward pressure on farmland values.”

Strong farm earnings appear to have helped the farmland market fare better than residential housing during the recent bust, the report notes. In 19 states, farmland values increased even though rural housing values declined. Soil quality and government farm program payments are other factors influencing farmland prices and demand.

The surge in farmland demand also reflects the growing percentage of non-operating landowners. The report notes that in three of the nation’s top four agricultural regions non-operating landowners own more than 30 percent of the farmland. For the U.S. as a whole in 2007, non-operators owned 29 percent of all farmland and they owned 77 percent of all farmland that was rented.

The Delta region as a whole had 35 percent non-operator ownership in 2007, but the highly productive land bordering the Mississippi River was 50 percent or more non-operator owned.

While opponents of government commodity and conservation payments carp about checks going to non-operators in big cities, an ERS analysis showed that over 90 percent of payments were mailed to rural addresses.

 

Discuss this Blog Entry 1

on Oct 8, 2012

The world, America especially, is driven by money. It is already difficult to be a farmer in America. Crops get ruined by droughts or fires yearly, and farmers struggle to make quotas. If ethanol is the future of the country, farmers will have no choice but to adjust their production accordingly. We ask them to provide us with basic necessities yet we do little to increase their livelihood.
Matt from http://speedyloansearch.com/

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