Ranch brokers Ken Mirr and Jeff Hubbard discuss the increase in demand they are seeing for income-producing properties for sale. These ranch experts suggest that this type of ranch, coupled with recreational values, makes for a truly special property. Thunder Ranch, a Utah ranch for sale, is used as an example.

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Farmland values in the Federal Reserve’s Seventh District climbed a record 17 percent during the second quarter of 2011, according to the Chicago Fed’s Farmland Values and Agricultural Credit Conditions Report. This economic shot in the arm marks the largest year-over-year gain since the 1970s for the District’s five-state area—one of the most productive regions in the Midwest. The value of “good” farmland increased 4 percent during the second quarter, compared with the first quarter of this year.

The report was compiled from the Chicago Fed’s survey of 226 bankers in the District, which includes Iowa, Illinois, Indiana, Wisconsin, and Michigan. Findings revealed that higher revenues for crops and livestock, coupled with growing investor demand, fueled the rural real estate roll. Agricultural mortgage rates averaged 5.62 percent—a record low that also contributed to the surge in District farmland values. Some respondents cited a higher-than-usual number of summer auctions as a factor.

“The combination of higher revenues for crop and livestock production has been an impetus for the significant increases in agricultural land values seen this year in the District,” the Fed reported in its newsletter. “Demand for farmland remained strong from both farmers and investors.”
Among the District states, only Wisconsin had a smaller year-over-year increase in farmland values in the second quarter of 2011 than in the first. Year-over-year land values in Indiana and Iowa climbed 21 and 20 percent respectively, while values in Wisconsin rose a modest 8 percent. Fewer than 2 percent of the survey respondents expect farmland values to decline in the third quarter of 2011.

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David Oppedahl, a business economist for the Chicago Fed, shares the bankers’ notion that the spike is no fluke. “Overall, the higher level of corn and soybean prices looks to be something that will continue through the end of the year,” he said early this week. “I think that over the next year we aren’t going to see any declines, and we are going to see continued increases, though probably not as strong as over the past year.”

On November 15, 2011, the Federal Reserve Bank of Chicago will hold a conference to explore the factors contributing to large increases in agricultural land values and cash rental rates in the Midwest. The details and agenda are available HERE.

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“If you took all the gold in the world, it would make a 67-foot cube. It would be worth about $7 trillion, about a third of the value of all the stocks in the U.S. So you can own gold, which can do nothing, or stocks. You could also have farmland. If you gave me the choice, between all the farmland in the country, stocks like Exxon Mobil, or gold, I’d choose the stocks and the farmland.”

— Warren Buffett
CNBC Squawk Box
March 2, 2011

Iowa by the numbers:
92: Millions of acres of corn planted in 2011, the second largest crop since World War Two
35%: Estimated amount of 2011 corn crop used for ethanol
$1.04: Growth of $1 invested in S&P 500 since 2000
$2.72: Growth of $1 invested in Iowa farmland in 2000

You only have to look at the change in Iowa farmland values between 2000 and 2010 to see how it compares to the S&P 500.

Source: Chicago Federal Reserve Bank

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VeraSun went public in 2006 just as interest in alternative energies was peaking. But as these stories in The New York Times and The Wall Street Journal indicate, since then it’s been all downhill for the South Dakota-based company, which was trading at 48 cents a share, well of its 52-week-high of $17.75.

Who says Wall Street is the only place where people are making bad bets?

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 What do you think? Is this market the strongest for farmland in decades? Weigh in using the comment form below.

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Consider this: If every kernel of corn and if every single soy bean produced by American farmers were converted into ethanol, it would account for just 20 percent of the country’s on-road fuel consumption. That’s one of many eye-opening conclusions in Michael Grunwald’s lucid account. Ethanol is not the answer to our national woes. It is one of many answers on a long list of energy sources that are presently underutilized, including natural gas, coal-to-liquids, wind power, solar power, and nuclear power.

Parting Thought? It’s all about the land, isn’t it?

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BY ERIC O’KEEFE

The amount of corn used for ethanol production has increased fourfold since 2000 from 600 million bushels to more than 2.4 billion bushels in 2006.

FACT: 16.5% Increase in average price of an acre of land in Iowa

In Iowa, the average price of an acre surged 16.5 percent to $4,313 for the year ending March 1, according to the Realtors Land Institute (RLI). The USDA reports Missouri farm values up more than 15 percent to $2,280 per acre. Even recreational land prices surged: 12 to 13 percent in Illinois, according to the Illinois Society of Farm Managers and Rural Appraisers. And the fuel propelling these increases? Government subsidies for corn ethanol.

The amount of corn used for ethanol production has soared fourfold since 2000 from 600 million bushels to more than 2.4 billion bushels in 2006 (more than 20 percent of the U.S. corn crop). According to the USDA, that number will increase more than 40 percent in 2007 when an estimated 3.4 billion bushels are used. In addition to keeping corn prices at near-record highs, this trend has led to a decrease in the number of acres planted in soybean and cotton, the conversion of Conservation Reserve Program acres back to cropland, and even farmers in nontraditional corn states converting crops to corn.

Broker Randy Hertz has been monitoring this price surge from the eye of the storm: rural Iowa. The president of Hertz Real Estate Services and the 2006 national president of the RLI, Hertz labels this phenomenon “ethanol euphoria.” He also offers some advice to those unfamiliar with the driving force behind these production numbers: “Never underestimate the ability of the American farmer to produce corn when the price is high.”

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