Tuesday, October 19, 2010

Farmland commanding record prices across country

Across the country, prices for farmland are on the rise as farmers expand operations and investors look to agriculture. "The frenzied activity, interest from nonfarm buyers and accelerating prices are reminiscent of behavior that contributed to the 1980s farm crisis," Pat Waters of the Omaha World-Herald reports. "But experts say critical differences exist today, most significantly the fact that many buyers pay cash and lenders require more money upfront from buyers." Jason Henderson, an economist and head of the Omaha branch of the Federal Reserve Bank of Kansas City, Mo., told Waters the difference between now and the 1970s is that farmers aren't buying assets with as much debt.

At a conference a few years ago, "A lender in the audience raised his hand and said to all the young guys, ‘Remember the lesson of the '80s: Too much debt in the face of falling land values is a recipe for bankruptcy. Manage your debt wisely,'" Henderson told Waters. Troy Louwagie, chairman of the Farmland Value Survey, which is published by the Realtors Land Institute, explained, "Seventy-five percent of Iowa's land has no debt against it. It's in strong hands." Strong grain prices have been the primary driver for farmland sales, Waters writes. The survey reported cropland prices increased an average of 8.5 percent from September 2009 to September 2010.

"Whenever corn is pushed into the $4.25-to-$4.75 range, it doesn't take long to get a return on your investment," Marc Hock, regional manager for Pinnacle Bank, the largest ag lender in Nebraska, told Waters. Hock also pointed to uncertainty about stocks, bonds and other investments and low returns for government-insured products such as certificates of deposit as factors. Buyers looking to finance farmland purchases are more likely to get credit compared to small business owners, Waters writes.. "No. 1, there's a tangible asset," Hock said. "Land is always worth something." (Read more)

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