The land market is more fraught with uncertainty than any other time in the past two decades, according to Charles Gilliland, a research economist at Texas A&M. "On the negative side, there is a very real threat of significant economic damage ahead that is unlikely to bypass agriculture if further job losses spread.”
On the positive side, he notes: "Many believe government spending will lead to hyperinflation in the future. Holding tangible assets like land provides protection against a sinking currency. Further, sizable pools of investment cash are reportedly waiting on the sidelines for safe, lucrative investments. Anticipated inflation, along with uncertain international political conditions, may form the foundation for strong attraction to the farmland market. These forces could well pump up farmland values.”
Long-time farmland manager Murray Wise of the Westchester Group acknowledges that the Federal Reserve system reports farmland values fell in many "regions during the first quarter (see "Land Surge Falters,” Summer issue). However, he says: "During May and June I believe the land market actually rallied from the 3% to 6% downward movement to basically near steady prices, reflecting back on the highs put in last summer. In mid July, 80 acres in Buena Vista County, Iowa, sold at auction for $6,450/acre.” Wise also notes that in his 33 years in the business, he has never seen less quality farmland being offered for sale.
Also making a case for investment in farmland is the return offered by alternatives such as money market accounts and the like, Wise adds. "Cash balances are earning from 0.02% to 0.4% interest. I know of tax-free bond accounts returning 0.01% interest. Compared with those, a farm with a net 2.5% to 4% return looks pretty appealing in this global investment environment. We are also living in an era in which the return of capital is almost more important than the return on capital.”
Josh Waddell, with Martin Goodrich Waddell Real Estate, reports that "after a pause in farm real estate sales last winter, a mix of traditional and first-time land buyers has begun buying.” The first category is the seasoned investor, he says, citing the reasons outlined earlier. Farmers also are in the market, Waddell says. "Farmers in the Illinois Farm Bureau Farm Management Program had an average net income of $211,890 before living expenses last year. Many have used that money to add farmland to their operations.” Absentee landowners also have enjoyed rents that as much as doubled in recent years, allowing them to add to their holdings as well, he adds.
"These types of buyers see no better place to get an excellent rate of return, a solid hedge against inflation and avoid the volatility of the stock market,” says Waddell. "And if the current deflationary forces reverse into a global run on the dollar, farmland will prove a more buoyant wealth preserver than dollar-denominated debt of any kind. I think the global push of nonfarm capital into this formerly untapped asset class is in its infancy.”