Ag land prices continue to rise
A July 2008 report from the Federal Reserve Bank of Minneapolis (covering 303 counties in Montana, the Dakotas, Minnesota, Wisconsin, and Michigan) says that during 2001-2007 half these counties saw farmland prices more than double.
In the first half of this decade, farmland appreciated mostly for reasons unrelated to farming; that is, value from ag production played a comparatively static role. More important during this period was demand for open land for nonfarm purposes—in many cases, to build homes during the recent housing boom. But even comparatively rural areas saw secondary demand for farmland, often from investors seeking to diversify their holdings or for recreational purposes like hunting.
Tax laws which allow deferral of tax on real estate profits when the proceeds are invested in other real estate also played a role. But as demand for housing and other nonagricultural uses slackened
[M]ajor commodities produced in the district—like corn, soybeans, wheat and milk—have commanded prices that farmers will talk about for years (see Chart 2). Specialty crops such as lentils, dry edible beans and peas, flaxseed, sunflowers and safflower—all of which have a significant presence in the district—also saw strong prices in 2007. Said one Minnesota farmer, “There’s potential in just about anything if you can grow a crop.”
“The market has changed dramatically in the last six months,” rising by 20 percent on top of a year-over-year increase of 10 percent,” says one farmland broker. Land near Grafton, ND attracted ten bidders and sold for $5800/acre.
Many of the buyers at these higher prices are prosperous farmers looking to expand their holdings. They’re not highly leveraged, so paying the mortgage might not be a serious problem when the cycle turns.
it appears that farmers, as a group, are in better financial position to weather a downturn in land values, the ag economy or both. The balance sheets of farms nationwide and in the district show modest debt levels and very strong asset and equity levels. Commonly used measures of financial health, like ratios of farm debt to both assets and equity, are at their best levels in at least three decades
A sidebar article notes that rising land prices aren’t so great for those looking to become farmers, and high commodity prices are a problem for cattle and beef producers. My own guess is that a rise in land prices almost always leads to a bubble and crash, but perhaps not very soon.
Tags: Dakotas, farmers, Minnesota