Across Corn Belt, Farmland Prices Keep Soaring

Nov 02, 2012

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“Get your hands up,” belted Marv Huntrods, the auctioneer, his baritone echoing from a raspy speaker in a plaid-carpeted Masonic lodge here last week. He chopped the air with one hand and drew out his vowels.

“Grains up overnight.” “It’s only money.” “Just tell me, yes or yes.” “Last chance.”

After about 15 minutes and a starting bid of $6,000 per acre, Mr. Huntrods, an agent with Hertz Farm Management, ended up with more than he had expected. A former John Deere dealer bought the 80-acre farm plot at a stunning price of $10,600 per acre. Mr. Huntrods had thought it would fetch less than $9,500 per acre.

Across the nation’s Corn Belt, even as the worst drought in more than 50 years has destroyed what was expected to be a record corn crop and reduced yields to their lowest level in 17 years, farmland prices have continued to rise. From Nebraska to Illinois, farmers seeking more land to plant and outside investors looking for a better long-term investment than stocks and bonds continue to buy farmland, taking advantage of low interest rates.

And despite a few warnings from bankers, the farmland boom shows no signs of slowing. Almost every year since 2005, except during the start of the recession in 2008, agriculture land prices have posted double-digit gains. In the same period, the Standard & Poor’s 500-stock index has had double-digit gains in only three of those years.

An August survey by the Federal Reserve Bank of Chicago showed a 15 percent increase in farmland prices since last year across a region that covers Iowa, Illinois, Indiana, Wisconsin and Michigan. Another survey released at the same time from the Federal Reserve Bank of Kansas City showed even higher growth in the Great Plains states, where farmland prices have increased 26 percent since last year.

The two Fed surveys and sales data have raised concerns from bank regulators about a potential farmland bubble, similar to the housing frenzy that helped set off the financial crisis. A year ago, rising farmland prices prompted regulators to warn banks not to relax lending standards. In July, the Kansas City Fed held a symposium to discuss concerns about a bubble.

“Any time you have an asset that doubles in value over a decade, there is cause for concern about how sustainable that growth is,” said Richard A. Brown, chief economist at the Federal Deposit Insurance Corporation.

For farmers in the land hunt, a potential bubble was barely a concern. Many said they needed to buy more land to expand their businesses so they can generate more income. And in this wobbly economy, they found safety in stashing their money in farmland.

“What’s a C.D. at the bank? Half a percent,” said Clark Wadle, who attended the auction. “What’s the stock market? Unstable. Whether land prices go up or they go down again, you still have the property.”

The winning bidder, Gaylord Jones of Eagle Grove, said that buying farmland was a way to invest on his own terms.

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