Bidding Wars
Strong commodity prices fuel explosion in cash rent, land prices
Mike Wilson
Published: Feb 11, 2011
Surging commodity prices have fueled a frenzied bidding war for farmland, to either rent or own.
Last year one farmer paid $13,900 per acre to outbid his neighbor for an 80-acre tract in Sioux County, Iowa. The bidding started at around $7,500 and the auction was over in less than half an hour. More recently an 80-acre tract of Plymouth County, Iowa, land sold for $10,000 an acre. We are hearing more frequent reports of $10,000 an acre sales in Western Illinois as well as other parts of Iowa.
Bids for cash rent appear to be going through the roof as well. One farmer offered to pay $425 per acre farm land to rent in northwest Iowa. The operator, who put his ad on an online classified service, says he is "set up for No-till and has experience with rougher ground and CRP removal."
A young farmer from Woodbury, Iowa, has offered to pay $300 per acre for cash rent on the same website.
Profits in agriculture have always tended to flow into the hard asset of land, says Farm Futures market analyst Arlan Suderman. Increased government payments increase the value of land, as do increased commodity prices. That's because land is considered the durable asset that will transcend time.
"It's considered a place of relative safety to park profits that will withstand time since it is a limited resource that is not consumed," he adds. "Whenever an acre of ground produces profits, there's an economic incentive to own more of those acres, thus creating competition for a limited land resource."
Adding fuel to the fire, investors see land as an attractive asset to own as the Federal Reserve continues to take steps to monetize the national debt. Many investors believe that land will hold its value better than the U.S. dollar long-term under the current fiscal and monetary policy.
Permalink: Click here
Tagged: farm, farm futures, arlan suderman, farm futures market, CRP
|