Despite the huge run-up in land values over the past year, it still can be a good investment, even at more than $10,000 per acre for prime Midwest land. “Based on today’s commodity prices, it’s cheap,” says Randy Hertz, chairman of the board, Hertz Land Management and President of Hertz Real Estate Services, Nevada, Iowa. “If you have cash and it fits into your long term plans, it may be a good time to buy.”
He spoke at this week’s Top Producer Summer Seminar in Bettendorf, Iowa. Good Midwest land values could still go up another $1,000 to $2,000 per acre, assuming strong commodity values hold. That’s because present land values provide a 6% return based on $5 corn and $11 soybeans. As a result, land has more room on the upside. He sees prices softening if corn goes back to $4/bu., however. To illustrates, farmland values softened in 2009 due to lower commodity prices after strengthening in 2008. “But I don’t expect them (farmland) to tumble,” Hertz says.
The returns from farmland are beating 25 mutual fund 401-K’s his company manages. Yet that’s nothing new as it’s been that way, on average, for the past 40 years, Hertz says. As a result, a small number of people owning farmland are interested in selling it because there is nowhere else to put money that can match farmland’s return on investment. To illustrate the fact that owners of farmland are holding onto it, from 2008 to 2010, land market land sales declined by 33%, according to data from the Farm Credit Services of America.
A wide variance exists among states in land value escalation. In Iowa, values have increased 139% over the past 10 years, while they have jumped 231% in South Dakota, the latter largely attributable to a shift to more corn and soybeans, higher value crops.
Hertz noted that recent sales have been very strong. Two weeks ago, a 73.5 acre track near Champaign, Ill., sold for $12,900/acre.