Farm land | A Comeback for AG

Farmers, private investors, and institutional owners are bidding up cropland prices to record highs, fueled by commodity prices that rose 29 percent in the year ending March 2011, according to the U.S. Department of Agriculture. In the Midwest alone, prices rose 23 percent during 2010, according to the Federal Reserve of Chicago, and have since spiked higher. Total returns for farmland were 2.4 percent in the first quarter of 2011, up 1.3 percent from a year ago and the strongest first quarter return since 2006, according to the National Council of Real Estate Investment Fiduciaries Farmland Index.

The eye-popping prices and impressive returns, in large part, reflect the relative scarcity of land for sale. Amid rising food prices, owners aren’t inclined to sell.

With prices on bank-owned transitional land down as much as 80 percent from the peak of 2005, “ag may be the highest and best use,” she says.

Farmers in the collar counties around Chicago are following a similar pattern, says Goodwin. Those who sold to developers for $75,000 an acre a few years ago are now buying it back for $15,000. “They’ll farm it for five to 10 years and sell it to a developer again,” he says. Much of this land is REO from larger banks, which seem more ready than smaller ones to take write-downs, he says.

In some cases, this farming or grazing use is a temporary way to qualify for lower agricultural tax rates. “You can get a fence up and cattle on a property in two weeks and substantially lower your ­carrying costs,” Surak says.

Homebuilders who have cash as well as regional investors are snapping them up at 40 percent of the average $25,000 replacement cost, she says. Other buyers for build-ready land include state and local governments and local housing authorities, which have used federal Neighborhood Stabilization Program funds to buy bank-owned land for new construction.

Even recreational land is getting the farm bug. “The biggest trend in recreational land is multiuse opportunities, including farming, timber, and habitat development,” says Derrick Volchoff, manager of Cabela’s Trophy Properties, a network of more than 250 independent real estate affiliates based in Sidney, Neb. Income helps to offset carrying costs as buyers remain hesitant in a weak economy.

Like all real estate, agricultural land prices are ­cyclical—so the highest of today will decline at some point. But as the world’s population grows and needs to be fed, the future looks bright for U.S. farmland and for those who sell and manage it.

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