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Is there a farmland bubble?

Hardwood11

Hardwood11

It is going to be a good fall!
This subject is something I watch daily, since I am in the real estate business. On QDMA.com this question came up. Most feel that "no" it will not be a bubble.

Personally I feel the high value farm land will level off or possibly go down if corn prices drop in the near future (which I think they will) It all depends on rain in the Midwest?

So many factors, crop insurance, ethanol, interest rates, investors, crop prices, competition....

I just have this feeling that despite the demand, these prices are too high for long term income to match. I feel a correction is possible.
Advice from veterans in the business, when everyone says it has to go up no end in sight, that is when it reverses

Your thoughts?


(The 2000-3000 per acre combination farm is probably not going to see much of a change, mainly referring to good ag land)
 
Yes I believe we will see a correction. I think more and more farmers are borrowing against ground they already own and/or financing much more now than just a year or 2 ago when the run up in land prices started heating up. Farmers are notorious for producing to much when the prices are high. I think if we get a good year weather wise they will produce the largest corn crop ever, and prices will go down. I don't know what kind of prices they will go down to, but if corn goes back to $3/bu, I forsee a lot of ground that was bought in the past year or 2, will be back on the market at a corrected price per acre. At least thats what I hope anyways... lol

I will say that it won't happen for a couple 2-3 years before that happens though, even if say corn dips to $3/bu this fall/winter. Most guys "should" have decent enough money saved to get them through low prices.

This is my theory anyways. Same one I've been saying now since 2005.. :D
 
You are already starting to see a correction in land prices around here. Now, will we ever see low prices that we saw in 2007-2008? Nope, not at all, but I also think that the 10K plus an acre for farm ground around here era is gone. It will stabalize, but demand for crop globally will keep prices driven up to a certain point, and land prices will remain higher that what we are used too.

There is a farm in Union county going to auction soon. I'm very interested in what it is going to bring.
 
Like Hardwood11 I have been paying close attention to prices because I make my living selling real estate. I had a conversation yesterday with an investor and his thoughts where something with a major effect on the market will have to come along like the grain embargos of Jim Carter to burst the bubble. Most common comment I hear today after an Auction is I can't believe it could bring that kind of money. My own thought from the last two I attended where that the properties brought 25 to 35% over high market value. Am sure I can't afford to speculate at these values.
 
I think yes, but it won't be a monster drop like there was in the early 80s. But if we see a record corn and soybean acres planted this year followed by a great year (weather). The prices of grains will come down and that will bring the price of land with it. Put a few of those good years together in crop production and we will see $5 corn maybe even below that. It was only 4 years ago $4.25 locked in was a good place to be on corn in August. That following winter guys wished they had some of it back to sell for $6. Yes it is a world market but in saying that we (Iowa) are still king in Corn! No place on earth grows corn like we do. If we have a few great years, with all of 100 mil acres (USA) planted to corn, we will see a major drop in Corn. How that effects the land value well hard to know how far but it will bring the price down.
 
Moderation in price: maybe.
Bubble/crash: no.

With the DOW rising, some investors might care to move back to stocks.

Interest rates are still ridiculously low. Farmers buying ground lately have had lots of cash down due to high grain prices. World demand for grain should be strong.
 
Top dollar 10k plus stuff may??? But the lower end combo stuff is where it should be. I sat with a well know Real Estate agent last weekend and she told me people are coming from all over to buy in certain markets. The farms produce grain and there is ever increasing pressure toward higher prices which means solid land prices. Heck I even read where China had straw buyers buying land here in Iowa. They did it to avoid the stigma of forigen owned and its their way to buy something solid.

Dan Perez always says...they aint making any more.
 
Yes, a correction will happen IMO.

Here's why:

Corn has a far lower yield relative to the energy used to produce it than either biodiesel (such as soybean oil) or ethanol from other plants.

And Countries like Brazil are beginning to use sugar, rather than corn, for ethanol production.

33% of our corn is used for feeding livestock, only 13% is exported, 40% is used for ethanol, and the rest is used for food and beverage production.

Once other countries become less reliable on corn for ethanol and people realize it's not as efficient or cleaner burning as some would like to think the demand will decrease and in turn prices of land will fall.
 
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JNRBRONC said:
Brazil's ethanol production has always been sugar cane based.
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Yes, you are correct.

I think as prices of corn continue to increase you will see countries look to alternate sources for ethanol production.

If the price becomes too high you either find a way to do it yourself or find an alternative.
 
DMiller6868 said:
I think as prices of corn continue to increase you will see countries look to alternate sources for ethanol production.
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I've always thought that making ethanol from corn was not wise, unless it was coming out of a copper kettle.

Sugar cane, the whole plant is used in the process.

I read an article that said Africa and a couple of other countries could cost effectively raise corn at last years prices. They might be bringing more acres into production which could moderate grain prices somewhat.
 
The kicker is the rise in population. I've seen some models and its nuts what could happen in 20 years. Food will be king for along time. No matter what or how its used.
 
If farmland falls, will it have an equal effect on rec ground? Has rec ground had the same percentage growth as farm ground?
 
vman said:
The kicker is the rise in population. I've seen some models and its nuts what could happen in 20 years. Food will be king for along time. No matter what or how its used.
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I agree about a growing world demand, but wonder if they will be able to afford to "buy" it.
 
India and China will. They are increasingly spending more on food per person per year.
 
I think land will stay strong for a very long time! Yes, there could be a slight correction but it shouldn't be severe. Most of the land(till & rec) is all or mostly paid for and every year that goes by more land is in less hands....and those people are paying cash!!

And in most areas its still going up! Yesterday in Madison Co for example a 120 Acres sold for $6,350/acre...68 tillable, so that's over $11k a till acre(with balance in woods/pasture). Might not sound like a ton to those of you in central Iowa, but this isn't central Iowa!! And decent hunting land is pushing $3k/acre again now in the southern counties.

Land is one of the best investments anyone can make.. with a limited supply and peoples "want" to own it...I don't see it crashing anytime soon.
 
1) Land prices have always fluctuated & have had downward trends at times. We'll see it again!
2) WHAT HAPPENS IF/WHEN.... We get 7% interest rates instead of 3's & 4's??? Corn falls to $3/bushel (I swear when I bought land in 2003- I think I saw $1.75 corn??? - that's not that long ago!!!)? Beans go to $8? Crop insurance subsidy is reduced? Crop subsidies are reduced or eliminated?
All of these things may or may not happen- I'll bet you SOME do. Maybe it won't "wipe out" the 80% who own land free & clear BUT it absolutely will drive prices down and it also could wipe out some of the 20% who are leveraged too hard. It only takes a small % of owners or farmers to have trouble to ripple through the whole market.

TIPS??? Diversify your farm income by putting rough stuff in CRP??? I think so. Paying down & locking in a long-term low rate? I think good idea.

BUY MORE WHEN THE PRICE DOES GO DOWN! :)

Great thread!!!

Thinkin Rut said:
If farmland falls, will it have an equal effect on rec ground? Has rec ground had the same percentage growth as farm ground?
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NO! Farmland is at "record highs" - REC GROUND IS NOT!!!!! $3k farm land is now bringing $10k in many specific examples I can show you. In that SAME TIME FRAME, I've seen REC GROUND go from $1,500/acre to $3,100 an acre- a recent sale I just watched. & personally I think the buyer on the 3100 got a great buy! that's OVER TRIPLING in farm land in many cases VS double in rec. There's even some rec ground that was bringing $1,500 then vs $2500 now. Premium rec ground is very limited supply & extremely Subjective. Farm land is a "commodity" is some ways and very OBJECTIVE with its price.

At the same time- both ripple into eachother. If ag falls, rec will come down with it some- absolutely. Obviously because rec has ag combined with it most times as well. BUT- can be very independent of eachother... An example would be: when housing collapsed 3-4 years ago... Rec ground went south with it. Ag ground did NOT. It increased. Rec ground is obviously far more "economy dependent" like a "luxury item" of many kinds.
 
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antleraddict said:
I think land will stay strong for a very long time! Yes, there could be a slight correction but it shouldn't be severe. Most of the land(till & rec) is all or mostly paid for and every year that goes by more land is in less hands....and those people are paying cash!!

And in most areas its still going up! Yesterday in Madison Co for example a 120 Acres sold for $6,350/acre...68 tillable, so that's over $11k a till acre(with balance in woods/pasture). Might not sound like a ton to those of you in central Iowa, but this isn't central Iowa!! And decent hunting land is pushing $3k/acre again now in the southern counties.

Land is one of the best investments anyone can make.. with a limited supply and peoples "want" to own it...I don't see it crashing anytime soon.
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The ability of the land to produce income should determine the price, but that seems out of whack right now.

Good example is that Madison County farm you mention. How many years of farming that 68 acres would it take to pay off the $762,000 that they paid for it?

25-30 years? Every parcel that I have bought, with the exception of one timber parcel, has a pay back time of 15 years of less, I always stick to that figure. Who knows if that is even a factor in some of these land decisions?
 
Hardwood11 said:
25-30 years? Every parcel that I have bought, with the exception of one timber parcel, has a pay back time of 15 years of less, I always stick to that figure. Who knows if that is even a factor in some of these land decisions?
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If a farmer farms in the area, he would rather pay a premium to have the parcel close, rather than buying ground a little cheaper the next county over. Plus, he might ask himself, when will be the next time I have a chance to buy this particular property.

Not saying they need to go crazy on the price, though.
 
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