Saturday, November 13, 2010

"Land Becomes Cash Crop in Farm Belt"

From the Wall Street Journal:
Prices for irrigated cropland soared 9.6% in the third quarter across the western swath of the Farm Belt amid booming demand for U.S. crops, according to a survey released Friday by the Federal Reserve Bank of Kansas City.

The quarterly survey of the region known as the 10th District, which covers western Missouri, Nebraska, Kansas, Oklahoma, Wyoming, Colorado and northern New Mexico, found that farmland prices rose for the fourth consecutive quarter since a drop in the third quarter of 2009, which is when the livestock sector was contracting in face of the steep recession.

The value of nonirrigated cropland in the region rose 6.4% compared with the 2009 third quarter, while ranchland values climbed 4.3%.

The rise in farmland prices is another sign that the U.S. farm economy is pulling out of the sharp recession far more robustly than the general economy, which is burdened by a stubbornly high unemployment rate and weak real-estate values. The U.S. Agriculture Department estimates that U.S. net farm income, a rough measure of profitability, is jumping 24% this year to $77.1 billion.

While most demand for farmland is coming from farmers, there also is growing interest among nonfarm investors who are looking for hard assets with a higher rate of return, and as a potential hedge against future inflation. Rex Schrader, of Schrader Real Estate and Auction Co., based in Indiana, says more outside investors, including pension funds, are buying farmland. "They're looking at agricultural land as a class of assets that they should have in their portfolio," he says.
Interest in farmland as an investment is high because economists expect a planting boom next spring. Prices of several of the major U.S. crops have soared since July as prospects for U.S. agricultural exports brightened. The Black Sea drought that temporarily crippled Russia's ability to export wheat is creating huge marketing opportunities for the U.S. wheat industry, which is expected to export 42% more bushels of wheat from this year's harvest than last year.

At the same time, the weak U.S. dollar is making U.S. commodities look like a bargain to emerging and developing nations....MORE
Previous posts:
"Is TIAA-CREF Investing In Farmland A Harbinger Of The Next Asset Bubble?"
Société Générale's Dylan Grice: "Higher crop prices 'permanent'" (ADM; SYT)
"Is agriculture the next big investment thing?" (DBA; FUD; MOO; RJA)
Marc Faber: "'Buy farmland and gold,' advises Dr Doom"
Green Acres is the Place to Be: "The UK farmland grab"
"Wall Street Eyes Farmland"
Hedge Funds Buying Farmland
The Last Holdout: "U.S. farmland fetches top dollar despite recession"
The hedge fund manager who bought a farm