A Good Investment: Farmland Values Likely To Remain High

By Karen Caffarini More Content Now Posted Apr 26, 2013 @ 03:54 PM Last update Apr 26, 2013 @ 04:02 PM One area of real estate remains unscathed by the burst housing bubble: farmland. Prices continue to increase for property with prime soil, especially in the Midwest where corn is king. Farmland values have doubled in Illinois in the past five years, according to William Bailey, director of Western Illinois University’s School of Agriculture, and he doesn’t foresee any drastic drops in the future. Here are a few reasons why. Investment opportunities After the bottom fell out of housing, stock market investments plummeted and interest rates on traditional bank accounts dropped, some investors began looking to agriculture property as providing a relatively safe return, said Bradford T. Knipe, senior managing director at Integra Realty Resources in Boise, Idaho, which specializes in farm property. Many investors will buy the land and lease it back to the farmer, he said. Growth spurt The reasons that caused the last big bubble in farm values to burst in the 1980s — high interest rates, farmers owing banks large amounts of money and lower commodity prices — aren’t present now, Bailey said. “Farmers have paid off their debt, bought good equipment and are looking for places to put their money. In some cases, their neighbor’s farm might look very attractive to add to the size of their own farm,” he said. Knipe said farmers are buying either because they need more land to do what they do, or want to buy out their competition. Foreign investment Countries like China, India and Saudi Arabia are aggressively purchasing foreign farm land to ensure an ample food supply is available for their own people, Bailey said. Local farmers would still work the land; they would rent the property from the other country, he said. The determining factor in this case, however, is whether a farmer will refuse to sell to a foreign investor for patriotic reasons, Bailey said. High commodity prices Hot commodities like corn are helping boost prices for Midwest farmland higher than in the northwest area of the country, such as Idaho and Washington, Knipe said. Bailey said an ideal location and plenty of uses also help Illinois corn farmers, who can ship the golden kernels down the Mississippi River to the Gulf of Mexico and out to the rest of the world for consumption, to ethanol plants and to other farmers for livestock feed. Back to its roots When the bottom fell out of the residential subdivision market, land that would have been considered for a new housing development reverted back to its agricultural roots. “The real reason for the change was that the market viewed these lands as reverting back to their highest and best use, from development ground to ag ground,” Knipe said. Taylor Scott International

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