One of the hottest assets — and hottest topics — is farmland. Here’s the price of land in Sioux County, Iowa, as reported annually by Iowa State. In the area, land has sold for several thousand dollars an acre more than the last data point above, and at a recent auction not far away, an auctioneer cajoled the crowd of buyers, reminding them that “it won’t be back on the market for 40 or 50 years.” A newspaper account said simply, “Investors have determined that land is a safe bet.”
I did a cautionary posting last spring and prices have rocketed higher since then. But “it doesn’t pencil,” as they say, unless prices keep going up. Where have we seen that before?
Also above are corn and soybean prices — that’s what’s grown in Sioux County — indexed for easy comparison. Of course, that’s only part of the equation. Crop yields have been getting better and as the acres per farmer has increased dramatically, there have been economies of scale. On the other side, input prices have been rising and those gargantuan tractors and combines aren’t cheap. How all of those factors fit together will determine the value of the land in the long run.
Two broad investment forces have also spurned interest in dirt: Very low interest rates and punk returns elsewhere. We’ll see how long those trends last and what happens to farmland when they reverse.
Iowa is in the Chicago Federal Reserve District. If you are interested in more information on farmland, you should check out its last AgLetter or a special publication, “Rising Farmland Values: Causes and Cautions.” (Chart: Bloomberg terminal.)
Wednesday, January 25, 2012
Posted by Bud Fox at 3:30 PM