published Monday, February 4, 12:28pm
I've noticed lately that the "skyrocketing farmland prices" headlines have pretty much disappeared from the news. Thank goodness!
To be sure, there's been plenty to write about. The drought, the Farm Bill, and many other issues have been well covered, especially in the "ag press." But the excessive attention to prices per acre can distort the market in several ways. By focusing on the very highest end of the market, we give an inaccurate picture of where prices really are. For example, just over a year ago, national media got carried away with stories about "$20,000-an-acre" farmland based on a small sale in northern Iowa. Investors got spooked, sellers got unrealistic ideas about what their land was worth, and pundits started talking about a "bubble."
In truth, Iowa farmland at the time was selling for around $7,000 an acre on average. It just happened that two farmers wanted the same field in an auction, and they wanted it badly enough to bid it up to an insane price. Now, more representative prices are up another 18-20% or so, depending on whose survey you use, and the price increase is old news.
Still, there's a lot worth writing about. Unlike $20,000-an-acre land, these are some developments that can actually help farmers and investors improve their results.
Interest in farmland is looking past the Corn Belt. The interest in rising farmland values has focused primarily on the Midwest and the Plains, but I'm seeing signs that is beginning to change. We recently sold a vineyard in Madera County, Calif., at a price many thought unthinkable until recently. And we're seeing a surge in farmland transactions in Georgia, Florida and other Southeastern states, where prices have remained stagnant and, in some cases, even declined.
Large investors are continuing to look for values. Hedge funds and other institutional investors have been taking a lower profile at farmland auctions lately, because farmers have been bidding aggressively on farmland they have (in some cases) coveted for decades. But those same investors have been quietly working with us and other brokers to help them identify opportunities where they can acquire farms at a price that gives them the rate of return they seek. These and other factors have led to a strong "private treaty" market in which the transactions are handled quietly and discreetly. We had an excellent year in 2012 with such sales and expect that to continue in 2013.
Investors have re-focused on fundamentals. Instead of asking where farmland prices are headed, more investors have returned to the things that really matter, like value, long-term demand, costs, rents, land quality and other factors that go into successful farmland investing. We need to focus on what rate of return a farm can provide. What are rental rates in the area? How much can an acre produce? How much water is available? What is the soil type, and how well has it been managed? Fortunately, farmers and investors are still asking the right questions, and that's healthy for the long term. This is why so many are looking beyond Midwestern corn ground for opportunities. Southern cotton and peanut farms, for example, present interesting possibilities, as do vegetable farms and vineyards in California and Oregon.