Land Values: Hot, Hot, Hot!

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My Road Warrior travels have found that agricultural land values are “hotter than a pepper sprout” to quote the Johnny and June Carter Cash song. I’ll answer the who, what, where and when questions relating to land values.

Who is buying farm ground? Very profitable growing agricultural producers have their sites zeroed-in on prime farmland with water access and infrastructure to support efficiency in input purchases and sale of outputs. Many of these producers are utilizing the reverse down payment strategy. Instead of paying 25% down payment and financing 75%, they are actually doing the reverse, putting 75% down and financing 25% at very low interest rates. In some areas of the Upper Midwest, anecdotally I am hearing the concept of flipping farmland, i.e. buying real estate and holding it a short time before selling it for a quick return. One only needs to travel to Florida or Arizona to see the dark side of this real estate investment strategy.

The second group of farmland investors is the neighbor next door. They are investing cash in real estate instead of keeping it in the bank or investing in stocks and bonds. Agricultural and rural people are very conservative on average when it comes to investing in stocks, particularly since last May’s 1,000-point plunge of the stock market in ten minutes. By the way, my agricultural lender friends indicate that these investors are generally between 60 and 90 years of age.

Finally, the big-block “silk suit” investors are investing in prime farm ground and areas with oil, mineral and wind power potential. These investors can range from famous billionaires to those involved in large retirement annuity programs. Many of these purchases are now confined to the lower Mississippi River and Delta region.

When will the farm real estate party be over? We will not turn out the lights on this party until we see major corrections in commodities, increased interest rates, and disruption in international trade flows.

 

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.

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