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Rising grain futures prices are floating every other related market along with them, including farm land. It's got farmers talking: Is the current land value trend a rising investment tide for farmers who own the land, or a tightening bubble that's going to burst soon? It's making for some tough decisions for farmers like Doug Martin.
"My dad still tells me stories of how my grandpa had the chance to buy ground for $800 per acre and turned it down. In today's world, that sounds crazy, but is it?" says Martin, a Mount Pulaski, Illinois, farmer and Agriculture.com Crop Tech Tour correspondent. "With land in central Illinois selling for over $9,000 per acre acre, should we buy it up or wait for prices to fall? We have taken such a huge jump in appreciation the last 5 years, one would think that it would have to have some type of correction."
It all has to do with the direction of the major fundamentals right now. Will current trends continue? If so, it's a good reason to be bullish on continued strength in the land market, says Agriculture.com Farm Business Talk member Red Steele. If not, look out.
"If you think $7 corn, 10% inflation..., $100-per-barrel oil with no substitutes and no new land being brought into production are all written in stone, land is actually undervalued and should gain another 50% or more," Red Steele says. "If you think corn will regress to a $5 price once supplies become adequate again, the world will find alternatives to oil and biofuels..., well maybe we had better hang on to our hats."
Other farmers say they're bullish on owning land right now, and they aren't alone. The recent land sales Farm Business Talk member Jim Meade / Iowa City says he's seen in the $7,000- to $13,500-per-acre range in Iowa haven't been driven only by investor interest.
"Many of these sales seem to be for cash to farmers," he says of the recent high sale prices of the last few weeks. And, for good reason, Martin adds.
"A 4% return paid on $9,000 [per-acre] land is possible this year, but with input costs already rising for the 2012 crop year, it really makes a good return questionable for future years," Martin says. "With that said, farmland has historically provided a 3%-5% return and had tremendous appreciation in value which would still lead me to believe that it is a solid investment."
But, these kinds of returns don't have all farmers as eager to invest in more land. Though the land value trend is just as bullish in his area, Farm Business Talk member Red Steele says he's not as excited about the kind of potential volatility in land values.
"I watched an 80 [acre field] sell for just at twice as much per tillable acre as the 160 [acres] laying fencerow-to-fencerow to it sold for 18 months earlier last week," he says. "So I can see the strength in the land market. I think I will sit this hand out and wait for new cards before I play again."