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Buying Land Still Makes Sense

June 10, 2011
By: Ed Clark, Top Producer Business and Issues Editor

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.
 
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COMMENTS (4 Comments)

Little Gary - IN
I am sorry, but its my opinion that Mr Hertz's comments are outrageous. In order to justify those kind of prices you have to assume 1) near perfect yields every year indefinitely 2) super high commodity prices for the next couple decades and 3) super low interest rates for the next couple decades and 4) that ethanol feedstock will remain corn indefinitely. Sorry Mr Hertz, I just don't see it and I think there are tremendous risk for farmland buyers at these levels. Personally, I think we are at the tail end of the farmland bubble and I am starting to see more outlandish statements like this in the trades. I am also starting to see a near mania surrounding farmland, where outside investors that don't know anything about the risks of farming are piling in. And farmers are piling on the debt at record rates. I have seen this movie before and its going to end very, very ugly. To me, this "new era" talk is a sign that we are getting close to a top. Mr Hertz can't possibly be considered objective on this topic when his main business is farmland brokerage!
8:09 PM Jun 10th
 
IA-78 - IA
Is Mr. Hertz willing to say how much land he owns? Is he willing to say how much land he has personally bought and paid for? What was his most recent purchase?

For the very wealthy it might be a good investment, as is gold, silver, and other hard commodities. We have been here before. It all cycles. I'm just wondering if Mr. Hertz is also buying today if it's so cheap or just spewing words. Is he walking the walk or just talking the talk?
5:45 PM Jun 10th
 
IA-78 - IA
Is Mr. Hertz willing to say how much land he owns? Is he willing to say how much land he has personally bought and paid for? What was his most recent purchase?

For the very wealthy it might be a good investment, as is gold, silver, and other hard commodities. We have been here before. It all cycles. I'm just wondering if Mr. Hertz is also buying today if it's so cheap or just spewing words. Is he walking the walk or just talking the talk?
5:45 PM Jun 10th
 
Neither Fish-nor-Fowl - Hedge City, MO
Maybe the 73.5 acres near Champaign was going to continue to be used as a track. Not sure if this track was used for racing cars, horses, parking train cars, or what, but in any case a tract of land like this would surely have too much compaction to revert to productive agricultural land and still pay top dollar.
5:01 PM Jun 10th
 



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