Farmland Barometer Home » Farmland Barometer January2012 » Q & A
At Heartland Ag Group Ltd., we appreciate the opportunities that we have to assist farmland owners with their management, acquisition, and sales of individual tracts of farmland. To share our insight into the current land market, we are highlighting the most often asked questions (and our responses) - - wonderful conversations:
What are Farms Selling For?
At
Christmas 2010 prime farmland was at $8,000
per acre. We ended this year at $10,500 per
acre. That is a 31% increase in 12 months - -
much of it occurred in the first half of 2011.
All types of farmland rose in value - - a rising
tide floats all boats!
What’s Driving Farmland Values?
Farmland is what it earns - - the number one
driver is $7.00 corn and $13.00 beans. Farmers
and investors have money that they are willing
to spend on farmland. The demand is up and
safety of your investment weighs heavily on
everyone’s conscience. Farmland becomes
high on many of our list of investments.
Are We in a Bubble?
No! The factors
pushing farmland are solid. We don’t see a
lot of speculative buying, leverage, unstable
commodity prices, high interest rates, or fickle
land buyers who will turn around and re-sell the
tracts. Many of the farmland purchases are cash
transactions and very stable buyers.
Is Inflation a Threat?
Deficit spending
and global sovereign debt issue make us realize
that inflation is in our future. Governments are
signaling that they refuse to reduce spending
- - leaving inflation as the only pathway out.
Inflation involves the velocity of money - - to
date we have not seen large sums of money
chasing goods and services general economy
(only in agriculture land). There is lots of
money parked on the side lines so inflation
could become prevalent a few years out.
What are Interest Rates Doing?
These are historically
and incredibly low
interest rates for
farm mortgages. 15
year locked in rates
are around 4.5% - -
unbelievable! This
is an excellent time
to lock in your long-term interest rates.
Someday interest rates will rise to combat
inflation. In the short term, our government
officials do not want to raise interest rates - - it
would harm the economy. Enjoy!
Who is Buying the Land?
Approximately
50% of the land is purchased by local farmers
and their families. That is the traditional
slice of the market. The rest of the land is
purchased by non-farm owners and investors
of all types. We are seeing local investors,
pension funds, foreign investors, and lots of
money wanting to be our new best friend!
What about Mother Nature (Weather)?
Yes - - we have just experienced two of
the most undesirable production season in
recent memory. History tells us a third year
of extremes (back to back) is not likely. If
Mother Nature cooperates, our corn and
soybean yields should jump dramatically. We
have the potential of 225 bushel corn and 65
bushel beans on a lot of our farms - - thanks
to good farmers and great seed genetics.
Look for rising yields in our immediate and
long-term future.
Compare Farmland to Other Investments
Farmland has the best long-term investment
return of anything on the planet - - averaging
a combined return of 10.25% over the last 40
years. The stock market has put in a similar
performance of 6.42% return. On a average
farmland has increased 6.5% in value each
year and produces a 4% dividend. Investors
world-wide find that to be attractive. And it
is very stable - - not a lot of volatile price
movements.