A new report Thursday bolsters the hopes of Nebraska and Iowa farmers for 2012: Land values are still headed up, continuing a boom sparked by high grain prices stemming from demand abroad and by fuel processors.
Prices paid for Midwest farmland averaged 25 percent higher in 2011 after 10 percent gains in 2010. About three-fourths of the buyers are farmers who are expanding their operations, according to Farmers National Co. of Omaha, the largest farm management firm in the country.
Prices range from $5,500 to $9,500 per acre for good-quality land in the region that includes Nebraska, the report said, and often top $9,500 per acre for top-quality land in Iowa.
Cash rents for farmland increased as much as 40 percent in 2011, said Lee Vermeer, vice president of real estate operations for Farmers National.
"It can't go up like this forever, we all know that," Vermeer said. "There's always corrections in the market whenever you have things go up this much for this long."
But he expects demand for land to remain strong at least through the first half of this year. "Depending on what commodity prices do and what the next crop year is going to be like, if we hold commodity prices at this level we're going to stay strong through the rest of the year."
If there's good weather and a surplus crop, he said, "we'd definitely see the market slow down at a minimum and maybe try to back up a little bit."
But so far, he said, "Land continues to be a tangible investment that has performed well, thus the demand."
In Nebraska and other western Corn Belt states, a shortage of for-sale irrigated land is pushing up prices for nonirrigated land as well, said J.D. Maxson, an area sales manager for Farmers National. Auctions of farmland in the past six months have set records in the state.
One reason is that the amount of land coming up for sale is limited, Maxson said. "Buyers are looking for land with high productivity levels, which is a challenge."
Despite the high prices, many land owners are holding on to their property because they would have to reinvest sale proceeds at a time when the stock market and other possible investments are volatile and uncertain, the report said. Farmland prices, in contrast, have been increasing more or less steadily for the past decade.
That same uncertainty is attracting nonfarming investors to the farmland market, Maxson said. In some cases inherited property is up for sale as heirs take advantage of prices to turn their holdings into cash, he said.
But farmers who are flush with harvest cash also are bidding on the land. "Farmers have been much more competitive in the market today, adding land to their own personal portfolios and operations," he said.
Low interest rates also are attractive to some buyers, although bankers say that most farmland buyers pay cash or mostly cash. That low level of debt is a positive factor, bankers have said, because the buyers would not be faced with payment problems when land values decline.
Iowa sale prices are up 32 percent from a year ago, said Sam Kain, a Farmers National sales manager. A recent Iowa State University study said the prices are setting records for the state.
"The bulk of buyers in our area are the farmers," Kain said. "While land is still a good investment for investors, farmers have been very aggressive in picking up additional acres to increase profits."
Even drought-ravaged areas of Kansas and Texas are seeing land price increases, Farmers National said. Top-quality land is bringing up to $4,500 an acre in Kansas and $3,000 an acre in the Texas Panhandle.
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