With 20/20 hindsight, nearly everyone today laments the fact they weren’t more aggressive in the land market a few years back. The perfect storm was in place – ethanol subsidies made corn the new gold rush, while soaring debt and a sluggish economy was driving investment dollars into commodities and better inflation hedges.
It seemed at the time that there was nowhere for land prices to go but up. But, as often is the case, everyone thought they’d have time to take advantage of it.
Well, prices have been soaring in the last 12 months. The Federal Reserve Bank says Iowa farmland rose 34% in the past year. When a 120-acre tract of farmland in Iowa brought $16,750/acre in October, a new record for the Hawkeye State, the talk began about the approaching peak in the current land bubble.
Then, this week the Des Moines Register reported the sale of a 74-acre plot in Sioux County, IA, that brought $20,000/acre, shattering all previous records. Initially, I thought this had to be land destined for a shopping mall or some other commercial or residential development. But, it appears that it was purchased by a neighboring farmer who plans to keep it in ag production.
This week, several leading banking analysts made the case that prices aren’t too high and, in fact, still justified given the current economic conditions. I’m not sure they were referring to $20,000/acre land, however, which begs the question of whether we are seeing the peak in farmland values?
The indications are that farmland still has some upside. Even at today’s prices, farmland pencils much better than grassland, indicating that there is considerable upside left.
I don’t know if the comparisons to the land debacle of the 1980s are legitimate. After all, there was no ethanol in those days, nor were there 7 billion people in the world . Plus, the farmland buyers today, who are mostly producers, are paying cash, not borrowing for their purchases. Thus, the comparison of today’s land situation to that of the 1980s I think is a little weak.