Wednesday, February 16, 2011

Farmland Boom Provides Bright Spot for U.S. Midwest Real Estate

This is our second farmland post in 24 hours, I'll repeat what I said yesterday:
We've been following this trend for the last three years and have been asked when will it top?
One sign will be when Optima Fund Management brings their American Farmland Company public, still a few years away....
From Bloomberg:
The bidders drove over snow- and ice-covered highways for a chance to own one of the most lucrative properties in the U.S. Midwest: 120 acres of farmland in Greene County, Iowa.

The winner of last month’s auction at St. Joseph’s Parish Center in Jefferson offered $8,200 an acre -- almost $1 million -- for the plot in Scranton Township. That’s 44 percent higher than the $5,701 per-acre estimate for average values in the county as of Nov. 1, according to Iowa State University data.

“It’s reflective of what we’re seeing,” Mike Duffy, an Iowa State economist in Ames, said of the auction outcome. “There’s just not a lot of ground offered for sale.”

Farmers and investors across the Midwest are bidding up cropland at auctions like the one in Jefferson as commodity prices surge. Farmland values in the central U.S. increased the most in at least two years in the fourth quarter, the Federal Reserve Bank of Kansas City said yesterday. The gains are a bright spot in a region where manufacturing job losses have driven down prices of homes and commercial property.
Prices may continue to climb even after the rise prompted Federal Deposit Insurance Corp. Chairman Sheila Bair to warn in October that a bubble may be forming. Values in Iowa, the largest corn- and soybean-growing state, may jump another 10 percent this year if commodities stay close to current levels, Duffy said in a telephone interview. They climbed 16 percent in 2010, according to an Iowa State survey.

“In the next year to two years, I don’t see a lot right now to indicate that it’s going to take a nosedive,” said Duffy, who conducts the annual Iowa land survey. “What people have to remember is farmland is primarily bought by farmers and they buy it for the long term.”

Demand for Corn
Corn futures rose 52 percent last year on the Chicago Board of Trade, the most since 2006. Global demand grew as inventories fell and warm, dry weather threatened output in Brazil and Argentina, the biggest corn exporters after the U.S. Soybeans rallied 34 percent in 2010, the most in three years, after record Chinese demand for the oilseed. Both commodities are trading close to their highest levels since 2008....MORE