Farmland Becomes Hot Commodity
Some states are seeing big jumps in agricultural land prices since mid-2010, which coincides with the rise in prices of agricultural products.
Kansas, in particular, has seen a big spike: Non-irrigated crop land in central Kansas averaged $3,000 an acre, which is an increase of 50 percent since June 2010, according to a recent survey by Farmers National Co. Meanwhile, irrigated farmland in central Kansas increased 15 to 20 percent since June.
Other Midwestern regions also posted increases of 10 to 20 percent in farmland.
Farmland along the coasts, on the other hand, have fallen in value in recent years because development prospects have dried up, according to Farmers National Co.
But in the Midwest, the income that crop and pasture land produces can be an attractive allure to investors, say experts. As the land generates extra income, it delivers a higher return for investors who often rent the land out to farmers.
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"These big investors are really national in scope," says Chris Ostmeyer of Farmers National in Wichita, Kan., who manages farms for out-of-town investors. "They'll rent it to the farmer and get a good return, better than they can get anywhere else right now."
Farmland prices are also rising higher from supply and demand: More buyers with fewer sellers are also driving up the higher prices, experts say. As such, farmland auctions have been drawing twice as many bidders as before.
However, some experts fear that the accelerating prices in farmland is heading for another bubble in the real estate market. Thomas Hoenig, president of the Kansas City Federal Reserve, says farmland prices may be getting above what is warranted by crop prices. He warns that buyers are borrowing to buy that land, bidding up prices, which ultimately could be a replay of the housing crisis.
Source: “Farmland Gets Pricier in Kansas, Elsewhere,” The Wichita Eagle (Feb. 7, 2011)
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