Food demand drives farmland prices

KANSAS CITY, Mo. — Prices are high for the world’s best farmland, passing $7,000 an acre in Nebraska and Iowa recently, because of strong world food demand over the next 40 years, an agricultural economist said here Tuesday.

In fact, said J.B. Penn, chief economist for farm equipment maker Deere & Co., for the first time the world’s ability to produce is about to be overtaken by the need for more food, with the world population growing 50 percent by 2050.

“That’s not a very long period indeed,” Penn told about 175 people attending a regional conference on agriculture sponsored by the Federal Reserve Bank of Kansas City.

That means the limited amount of farmland will be strained to keep up with the growing population and the movement in developing countries of people from rural areas to urban areas, he said.

“Most of the good land in the world today is already under cultivation.”

Poorer-quality land will require “costly and controversial” measures, such as increased irrigation, to produce more crops, he said.

Separately, Farmers National Co. of Omaha reported that recent sales of good-quality farmland reached $8,000 an acre in Illinois, $7,500 in Iowa and $7,000 in Nebraska.

J.D. Maxson, area sales manager for Farmers National, said demand is high for land that can grow row crops such as corn and soybeans. Prices are up partly because little ground is for sale, he said.

Sale prices of farmland grew 6.3 percent in 2009 despite the recession.

“People are looking for the safest possible investment, which is high-quality property,” Maxson said.

Grassland also is drawing higher prices, he said.

For example, Maxson said, land near O’Neill, Neb., recently sold for $580 per acre, substantially higher than the recent sales range of between $385 and $450 per acre.

Penn said such sales are partly due to investor interest, which is strong not only in the United States but also in developing areas such as sub-Saharan Africa.

“I don’t think there’s a bubble in the U.S. farmland market,” he said, so land values should hold up as demand increases.

In 2005, the world produced 7 billion tons of food, he said. By 2030, rising population will demand another 3 billion to 4 billion tons.

“Just imagine the investment required,” he said, including irrigation, food storage, transportation and processing.

As more people move to urban areas, he said, they start to improve their diets.

“The first thing they want to add is more animal products.”

Unfortunately, he said, animal products require more water, and water also will be a scarce resource.

Agriculture uses about 70 percent of the water consumed in the world. A pound of beef requires 1,800 gallons of water, while a pound of wheat requires 180 gallons.

“We’re going to have to use water more efficiently,” Penn said.

Much of the long-term demand will come from Asia, especially India and China, he said. But Africa’s economy also is developing.

“It’s striving to be another one of these poles of growth,” Penn said. Despite problems in some countries, “there’s a lot of stability there.”

The world economy used to have North America and Europe on one side and the rest of the world at a much lower level, Penn said. Now, Asia’s growth and the potential of Africa have changed the picture to “several poles of economic activity.”

“This is something we have not had before,” Penn said.

China, for example, grew steadily through the world recession, and so far its leaders have been successful in guiding its economy, he said.

While many factors point toward healthy agricultural growth, there are serious challenges, including an imbalance in labor, environmental concerns, unwise public policy decisions in some countries and higher food prices that strain developing countries’ budgets, Penn said.

“I don’t think we’re going back to $2 (per bushel) corn.”

Tuesday, corn for July delivery was trading at approximately $3.37 on the Chicago Board of Trade.

Contact the writer:

444-1080, steve.jordon@owh.com

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