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March 2011 Archive for Your Precious Land

RSS By: Mike Walsten, Pro Farmer

Mike Walsten has covered major business trends in agriculture for more than 40 years.

Yale Economist Talks Investment Bubbles And Farmland Prices, II

Mar 31, 2011

Mike Walsten

Yale Economist Robert Shiller, who has achieved international recognition for his work on asset bubbles, has identified farmland as the next potential bubble. In his column titled Bubble Spotting on the web site Project Syndicate, Shiller discusses asset bubbles and says in answer to the question of where the next speculative bubble will be: "My favorite dark horse candidate for the next decade or so is farmland."

His column discusses stocks and the housing market as well as the commodity market. He leans to farmland because it is tied to the commodity market which has a "new era" (his term) story attached to it which includes new energy demands due to a colder and snowier winter in the northern hemisphere, global food production impacts due to global warming and food shortages leading to political unrest in the Middle East. He emphasizes bubbles are difficult to predict and can take a long time to develop because they are "social epidemics, fostered by a sort of interpersonal contagion." It seems he's talking about a crowd mentality acting in unison on an idea or set of ideas. It's interesting reading. Check it out here.

New: In a follow-up to his column Shiller appeared on Fox Business TV this week to talk about the housing market. But at the end of the interview, he was asked about his comments that farmland could be the next bubble. Note: he emphasized that his was not a predictition but a guess. He pointed out that farmland rose along with housing prices but farmland corrected only 5% before prices firmed again "because they aren't building any more farmland." He said his theory was that current events area creating a mind set that could lead to a bubble.

His interview on Fox Business is included in this column by Jacob Wolinsky who is writing on the website gurufocus.com about whether the economy is headed toward deflation or inflation. Click here for the full column.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Yale Economist Talks Investment Bubbles And Farmland Prices

Mar 28, 2011

Mike Walsten

Yale Economist Robert Shiller, who has achieved international recognition for his work on asset bubbles, has identified farmland as the next potential bubble. In his column titled Bubble Spotting on the web site Project Syndicate, Shiller discusses asset bubbles and says in answer to the question of where the next speculative bubble will be: "My favorite dark horse candidate for the next decade or so is farmland."

His column discusses stocks and the housing market as well as the commodity market. He leans to farmland because it is tied to the commodity market which has a "new era" (his term) story attached to it which includes new energy demands due to a colder and snowier winter in the northern hemisphere, global food production impacts due to global warming and food shortages leading to political unrest in the Middle East. He emphasizes bubbles are difficult to predict and can take a long time to develop because they are "social epidemics, fostered by a sort of interpersonal contagion." It seems he's talking about a crowd mentality acting in unison on an idea or set of ideas. It's interesting reading. Check it out here.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

 

 

Survey: Iowa Cropland Surges 20% In Six Months

Mar 22, 2011

Mike Walsten

The value of an acre of Iowa cropland rose 19.7% between September 1 and March 1, according to a survey conducted by the Iowa Farm and Land Chapter #2 REALTORS® Land Institute (RLI). Combining that 19.7% increase with the 5.7% gain reported in September for the March-to-September, 2010 period indicates a statewide average increase of 25.4% for year from March 1, 2010 to March 1, 2011. Troy Louwagie, ALC, Hertz Farm Management, Mt. Vernon, Iowa, who heads up the survey team for the RLI, said the current percent gains are the highest six-month and 12-month increases ever reported by the RLI survey. The RLI has conducted the survey since 1978. Louwagie did indicate the annual Iowa Land Values Survey conducted by Iowa State University reported annual increases in excess of 30% in 1973, 1974 and 1975 -- years prior the start-up of the RLI survey.

The RLI divides cropland into three categories based on soil quality -- high, medium and low quality. The survey pegged the statewide average value of high quality cropland at $7,389 an acre, up 20.6% from September. The survey found two of the state's nine crop reporting districts listed a district-wide average in excess of $8,000 an acre for high quality cropland. These were the northwest crop district, $8,193 an acre, and the west central district, $8, 165 an acre. Five of the nine districts reported an average in excess of $7,000 an acre but less than $8,000 an acre for high-quality cropland. The southwest district reported an average of $6,770 an acre for high-quality cropland. The south central district had the lowest reported average, $5,904 an acre, for high-quality land.

The value of medium-quality cropland rose 18.6% to a statewide average of $5,700 an acre. The value of low-quality cropland rose 19.7% to a statewide average of $4,034 an acre.

The survey also indicated the value of non-tillable pasture land rose 9.9% to a statewide average of $2,213 an acre while the value of timber land rose 9.4% to a statewide average of $1,995 an acre. The survey found the demand for recreational land continues to be weak. "Recreational land is not selling well," Louwagie said.

Positive factors influencing the land market cited by the survey include: strong commodity prices, favorable long term interest rates, limited amount of land offered for sale, lack of attractive alternative investments, higher livestock prices, view of land as a safe investment and fear of inflation. "High quality, well-drained, productive farms continue to sell the best," Louwagie said.

Negative factors influencing the land market included: higher input costs, fear of a farmland bubble, tighter credit, continued uncertainty in the U.S. and world economy, high land prices.

The survey also found that 70% to 80% of buyers were farmers -- either active or retired.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Story Tells Of Strong Land Prices In Fresno County, California

Mar 21, 2011

Mike Walsten

Here's an interesting piece about what's happening to farmland values in the San Joaquin Valley of California. It appears the same factors that are lifting Corn Belt land prices are also work in some specialty crops. The story: "It's a seller's market for Valley farmland," by Robert Rodriquez ran in The Fresno Bee March 19. Click here for the story.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Survey Finds Strong Gains In Illinois Farmland Values

Mar 16, 2011

Mike Walsten

High commodity prices and lack of good quality farmland for sale pressed the value of Illinois farmland sharply higher by the end of 2011, according to a report issued by the Illinois Society of Professional Farm Managers and Rural Appraisers (Society). Each year the Society conducts a survey of its members detailing land value and rental trends across the state. This year's survey found the value of excellent to good quality farmland jumped as much as 14% to 18% across northern Illinois, 10% to 22% across central Illinois and 10% to 33% in southern Illinois.

"There are two major points coming out of this year's survey," stated Don McCabe, AFM, Soy Capital Agricultural Services, Bourbonnais, Ill., and general chair of the 2010 survey. "The most striking is crop agriculture is financially strong and Illinois farmland values and lease trends are on the rise. The second is that there is more variation between regions and within regions from higher to lower productivity soils. Economic forces that are pushing the current broad rise in crop returns, rents and land values are not uniformly affecting categories of farms or areas. Even from farm to farm in similar neighborhoods there can be differences based on lease type, farm operation and management," he said.

For example, in the collar counties of Chicago, the value of average to fair quality farmland varied from a decrease of 9% to an increase of 5%. "This area is still trying to discover its value following the sharp run up in land values as they shifted from farmland to development potential. That land did not get developed and development potential is now gone for the near future and values are shifting back to farmland value. Another example -- far southern Illinois which noted good quality land rising 10% to 33% and average/fair land jumping 20% to 38%. The survey notes there is no land in the region classified as excellent quality land therefore demand is concentrated on good to average quality ground.

"In general, Illinois farmland values were driven higher by increasing expectations of farm incomes as the 2010 year progressed and commodity prices increased," McCabe noted. "There is every expectation that this trend will continue in 2011 and it certainly has when you look at recent auctions."

Demand for recreational land is generally soft-to-declining with few sales to support an appraisal, only showing stability or some strengths in areas very close to population centers. "Aside from the 'close-in' effect, comments gathered from all the regions regarding recreational land include descriptions such as declining or fallen significantly with the most positive markets being just 'stable'," he explained.

Estate sales still account for the majority (57%) of reason land is being sold. Local farmers account for the majority (56%) of the buyers.

When asked if they believed farmland prices would fall more than 20% in the next year, none of the respondents believed that the chances were greater than 10% while a full 58% believed the chance was very small.

Click here for the press release.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Farmland Bubble? FDIC Waves Yellow Flag At Symposium

Mar 10, 2011

Mike Walsten

No problems yet, but be careful was the basic message of the special Federal Deposit Insurance Corporation (FDIC)-sponsored symposium held today, March 10. The FDIC titled the conference: "Don't Bet The Farm: Assessing the Boom in U.S. Farmland Prices." FDIC chair Sheila Bair set the tone for the symposium by stating: "Although we don't see a problem at this time, conditions are such that a problem could develop down the line." Brent Gloy, associate professor at Purdue University added: "It's good that we are holding this meeting while we can deal with issues when it's easy rather than waiting until we are in a crisis."

Symposium speakers tended to see a favorable outlook for agriculture in the near term, but expressed concern over what could develop when net farm income retreats from current levels, when profit margins for grain producers return to more normal levels or even dip into the negative and when interest rates eventually turn higher. Research conducted at the Kansas City Federal Reserve Bank indicated a rise in interest rates and a return to more normal (higher) capitalization rates could mean a reduction in land values of nearly one third.

Matthew Williams, president, Gothenburg State Bank, Gothenburg, Neb., indicated his bank and many ag bankers well remember the lessons of the 1980's agriculture recession. His bank has restricted their lending to 60% of value. Kenneth Keegan, senior vice president and chief risk officer, Farm Credit Services of America, Omaha, Neb., said his lending institution has a lending maximum of 65% of value. Williams pointed out ag producers are also much more sophisticated in managing risk than in the 1970s through increasing use of technology, financial management (debt levels are very low) and marketing. "The major change in risk management for producers is the advent of new crop and revenue insurance products. These new products give producers risk management tools that were simply unavailable in the 1970s," he emphasized. Both he and Keegan indicated producers and ag banks are currently in very strong liquidity positions which give both groups greater cushion in the event of a financial downturn. "This spring farmers will go into planting with large cash reserves in the bank and that almost never happens," added Jim Farrell, AFM, president and CEO of Farmers National Company, Omaha, Nebraska.

Unnerving were the comments by William Isaac, chairman of LECG Global Financial Service and former chairman of the FDIC in the late 1970s into the 1980s. He drew comparisons between the nation's current economic environment and the 1970s. He said the financing of the Vietnam War and the launch of President Johnson's Great Society in the 1960s were done through deficit spending. A very loose monetary policy existed as well and the value of the dollar dropped dramatically which fueled grain exports and sent net farm incomes higher. He said the economy is again seeing the funding of wars and a broad expansion of entitlements "without any serious effort to cut deficit spending." He pointed to the current monetary policy which has driven down interest rates and the dollar. "I'm not saying there is a crisis in the ag sector. I'm saying there are warning signs," he said.

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Farmland Bubble? FDIC Will Review March 10; K-State Paper

Mar 09, 2011

Mike Walsten

Talk of a farmland bubble continues to grow with the Federal Deposit Insurance Corporation (FDIC) holding a special symposium on the issue Thursday morning, March 10. The FDIC titled the conference: "Don't Bet The Farm: Assessing the Boom in U.S. Farmland Prices." Interest in the symposium is so strong the FDIC stopped accepting registrations. Read the press release here. You can watch it on web cast if interested.

The New York Times has raised the question with this recent piece.

The Financial Times has ventured into the subject with this recent story.

We've seen plenty of other stories on the subject, as well, ranging from The Wall Street Journal to the Omaha World-Herald.

We also find this presentation by Kansas State's Bryan Schurle to be very useful.

What do you think?

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Texas Cropland Values Finish 2010 5% To 12% Stronger

Mar 07, 2011

Mike Walsten

The value of Texas dryland and irrigated cropland rose 5% and 12%, respectively, in 2010, according to the most recent survey conducted by the Federal Reserve Bank of Dallas. The bank, which serves all of Texas, northern Louisiana and southern New Mexico, found Texas ranchland values rose 4%. The bank survey found 22% of survey respondents expected farmland values to continue to rise in 2011 compared to only 3% who felt that way a year ago.

Click here for the full report.

I will have more details in the next issue of my newsletter. If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

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