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December 2010 Archive for Your Precious Land

RSS By: Mike Walsten, Pro Farmer

Mike Walsten has covered major business trends in agriculture for more than 35 years.

Iowa Farmer: "American Farmland Has Been Way Too Cheap"

Dec 23, 2010

Mike Walsten

The idea U.S. farmland is "way to cheap" may sound ludicrous to some, but that's the opinion offered by James Freeland, who farms near Corning, Iowa. He expressed his beliefs in a guest opinion in the Des Moines Register, December 22. (click here for the full column.) How can he say that you ask? He looks at the value of productive farmland in other developed countries and reasons U.S. values, along with the security, stability and safety offered by farmland ownership, are under priced.

He writes: "American farmland has been way too cheap and it took this serious international economic downturn to finally make this apparent. The tide of investor money in this country and worldwide is looking for a place to settle, a place it can call home, where it is safe and protected, where it will earn a return forever, where it cannot be vaporized by Wall Street, where it is part of a community, where it will retain its value in inflationary times."

It's interesting reading.

Click here for the full column.

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

Strong Ag Economy Lifts Central U.S. Rural Economy

Dec 20, 2010

Mike Walsten

The Midwestern rural economy is surging thanks to a strong agricultural economy. But the big worry is a potential bursting of farmland prices. That's the thrust of the latest Rural Mainstreet Index (RMI) conducted by Creighton University in Omaha, Nebraska. The index, which ranges from 0 to 100 with 50 considered "growth neutral," rose to its highest level since January 2008 during December. The farmland price index, a portion of the RMI, soared to its highest level since March 2008. The survey measures attitudes of bankers in the ten midwest states of Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota, and Wyoming.

Here is the full press release:

OMAHA, Neb. – The overall index for the Rural Mainstreet economy moved above growth neutral 50.0 for a second straight month advancing to its highest level since January 2008, according to the December survey of bank CEOs in a 10-state region.

 The Rural Mainstreet Index (RMI), which ranges between 0 and 100, increased to 55.4 from 53.3 in November.  This compares to a reading of 40.9 for December 2009.

Creighton University economist Ernie Goss said, “Very healthy farm income is rippling across the Rural Mainstreet economy.  Businesses heavily dependent on the farm economy continue to experience very strong economic conditions.” Goss and Bill McQuillan, CEO of CNB Community Bank of Greeley, Neb., created the monthly economic survey in 2005.

 The farmland price index soared for the month with the index moving above growth neutral for an 11th straight month to 76.9, its highest level since March 2008, up significantly from 68.1 in November.  The farm equipment sales index likewise bounced higher with a December reading of 77.8, a record high, from November’s 68.1.

Michael Johnson, CEO of Swedish American State Bank in Courtland Kan., attested to the rapid price growth in farmland, “A land auction was held two weeks ago and land that would have brought $2,500 an acre two years ago sold for $5,000 to $5,500 an acre.”

“This month bankers were asked to name the biggest threat to the Rural Mainstreet economy for 2011.  Over one-third or 35 percent indicated that a bursting of the farmland price bubble was the number one threat to the economy for next year.   More than one in four or 27 percent of the bankers named low agricultural commodity prices as the number one risk for the Rural Mainstreet economy,” said Goss, the Jack A. MacAllister Chair in Regional Economics at Creighton. 

Jeffrey Gerhart, CEO of Bank of Newman Grove, in Nebraska echoed words of caution, “While the agricultural economy has been doing well, ag bankers and farmers need to be cautious as they look ahead to 2011 and beyond.

Steven Lane, CEO of Security Savings Bank in Farnhamville, Iowa, said, “There is some concern over the sharp increase in land prices in the last three months.”  He indicated that a large share of buying was coming from nonlocal investors.

Expansions in farm activity, including land and equipment buying, pushed loan volumes higher with a December reading of 52.3, up significantly from November’s 35.3 and October’s 48.4.

David Callies, CEO of  Miner County Bank in Howard, S. D., confirmed solid farm income in his area. “Liquidity is very high with deposits up and loans being paid down.  Loan demand is low,” he said.

For the 10th straight month, the other two banking indicators stood above growth neutral.  However, the checking deposit index sank to 66.7 from 76.3 in November. The index for certificates of deposit and other savings instruments slumped to 50.1 from November’s 55.8.

This month, bankers were asked when they expected a Federal Reserve interest rate hike.  Approximately 62 percent anticipate a 2011 increase.  The remaining 38 percent expect a rate increase in 2012.

The Rural Mainstreet economy has begun to add jobs with a December jobs index of 50.1, up from November’s 46.8 and October’s 46.0. “While many metropolitan areas continue to shed jobs, agriculturally dependent small towns have begun to see improving job prospects,” said Goss.

The economic confidence index, which reflects expectations for the economy six months out, dipped slightly to 62.2 from 63.8 in November.   The confidence index has been trending higher over the past year and is well above last December’s reading of 53.7.   

Home sales remained weak with a December reading of 43.9, which was down from November’s 45.1. This is the sixth straight month the reading was below growth neutral 50.0.  Surprisingly, the retail sales index moved above growth neutral for a second straight month with a December reading of 57.1, up significantly from November’s 50.1.  “Home sales have been on the decline since the end of the tax credit for first-time home buyers last April,” said Goss.

Bankers were asked how much residential housing prices in their areas have changed over the past year.  Only 12 percent reported an upturn in prices while 52 percent indicated that housing prices had declined over the past year.  One in four or 25 percent said housing prices had declined more than 5 percent over the past 12 months.   

Each month, community bank presidents and CEOs in nonurban, agriculturally and energy-dependent portions of the 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index (RMI) is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300. It gives the most current real-time analysis of the rural economy.
 

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

Iowa Land Values Post 16% Gain

Dec 15, 2010

Mike Walsten

The value of an acre of Iowa farmland rose 15.9% this year, according to the annual Iowa State University survey released today. The survey found an average acre rose $693 to a value of $5,064. The survey results are based on November 1. The survey found the highest crop reporting district was the northwest district which reported an average value of $6,356 per acre. The lowest crop reporting district was the south central which listed an average price of $2,690 per acre. The highest county was O'Brien which listed an average value of $7,148 per acre. The lowest county, according to the survey, was Decatur, which listed an annual price of $2,085 per acre.

Click here for the release.
 

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

Fed Bank Pres: Land Price Runup "based on fundamentals" not a "bubble"

Dec 03, 2010

Mike Walsten

Not all bank officials are talking farmland "bubble." Federal Reserve Bank of Chicago President Charles Evans is quoted in the Des Moines Register as saying: "You've certainly seen an increase in prices and values, but it's based on fundamentals." Evans' views came during a meeting with the newspaper's reporters and editors this week. Click here for the story.

Federal Deposit Insurance Corporation Chair Sheila Bair recently expressed concerns an asset bubble could be forming in farmland. Her caution was followed shortly after by similar warnings from Federal Reserve Bank of Kansas City President Thomas Hoenig at a national meeting of agricultural bankers. While Hoenig said he did not currently see a bubble, he warned that rising land values could tempt farmers and lenders to over-leverage farmland purchases. "What I worry about are the incentives we're placing in the market that then create the conditions for a bubble," he said.

Evans expressed optimisim about agriculture in general and said lenders are keeping leverage down on large loans by requiring a high downpayment.

Click here for the full story in the Register.
 

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

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