Land Becomes Cash Crop in Farm Belt .

[MNeagle]

By LAUREN ETTER and SCOTT KILMAN

Prices for irrigated cropland soared 9.6% in the third quarter across the western swath of the Farm Belt amid booming demand for U.S. crops, according to a survey released Friday by the Federal Reserve Bank of Kansas City.

The quarterly survey of the region known as the 10th District, which covers western Missouri, Nebraska, Kansas, Oklahoma, Wyoming, Colorado and northern New Mexico, found that farmland prices rose for the fourth consecutive quarter since a drop in the third quarter of 2009, which is when the livestock sector was contracting in face of the steep recession.

The value of nonirrigated cropland in the region rose 6.4% compared with the 2009 third quarter, while ranchland values climbed 4.3%.

The rise in farmland prices is another sign that the U.S. farm economy is pulling out of the sharp recession far more robustly than the general economy, which is burdened by a stubbornly high unemployment rate and weak real-estate values. The U.S. Agriculture Department estimates that U.S. net farm income, a rough measure of profitability, is jumping 24% this year to $77.1 billion.

While most demand for farmland is coming from farmers, there also is growing interest among nonfarm investors who are looking for hard assets with a higher rate of return, and as a potential hedge against future inflation. Rex Schrader, of Schrader Real Estate and Auction Co., based in Indiana, says more outside investors, including pension funds, are buying farmland. "They're looking at agricultural land as a class of assets that they should have in their portfolio," he says.

Interest in farmland as an investment is high because economists expect a planting boom next spring. Prices of several of the major U.S. crops have soared since July as prospects for U.S. agricultural exports brightened. The Black Sea drought that temporarily crippled Russia's ability to export wheat is creating huge marketing opportunities for the U.S. wheat industry, which is expected to export 42% more bushels of wheat from this year's harvest than last year.

At the same time, the weak U.S. dollar is making U.S. commodities look like a bargain to emerging and developing nations.

The U.S. is exporting a record amount of soybeans, thanks largely to the protein-hungry middle class within China, a country that will likely buy one-third of all soybeans just harvested in the U.S. The appetite of Chinese textile mills is so strong that U.S. cotton exports are expected to climb 31%, which could drain U.S. supplies by next summer to the lowest level since 1925, according to USDA projections.

The prices of cotton, corn, wheat, and soybeans are up, 119%, 49%, 39% and 35%, respectively, from a year ago.

Dan Basse, president of AgResource Co., a Chicago commodity forecasting concern, said Friday that the broad price rally is signaling U.S. farmers to plant an additional 10 million acres, or 4% more than this year.

Some regulators have begun to wonder whether farm land prices are climbing too high, too fast. Sheila Bair, chairman of the Federal Deposit Insurance Corp., posed the question in an October speech of whether an asset bubble is building in U.S. farmland, the value of which has climbed 58% since 2000 in inflation-adjusted terms, she said.

"While the credit structure underlying U.S. farmland does not appear to involve excessive leverage or inappropriate loan products, this is a situation that will continue to require close monitoring," Ms. Bair said then.

http://online.wsj.com/article/SB10001424052748704865704575610921639369184.html?m od=rss_whats_news_us_business

[MNeagle]

In Price of Farmland, an Echo of Last Boom


http://graphics8.nytimes.com/images/global/backgrounds/transparentBG.gif
Jeff P. Freking, a farmer, in one of the fields near Le Mars, Iowa, that he purchased for $10,000 a acre at a land auction.

The 80 acres of rich farmland that Jeff Freking and his brother Randy bought near Le Mars, Iowa, on Monday for $10,000 an acre would seem to have nothing in common with a condo in Miami or a house in Las Vegas.

But as prices for agricultural land surge across America’s grain belt, regulators are warning that a new real estate bubble may be forming — echoing the frothy boom in home prices that saw values in Miami and Las Vegas skyrocket and then plummet.

“It just seems to be going up in leaps and bounds here,” said Jeff Freking, who bought a similar farm, also in northwestern Iowa, for $6,000 an acre just two years ago. “Everybody thinks it’s crazy.”

The surge in prices has been dizzying throughout the Midwest, with double-digit percentage increases last year in Illinois, Indiana, Iowa, Kansas, Minnesota and Nebraska. In parts of Iowa, prices for good farmland rose as much as 23 percent last year, according to the Federal Reserve Bank of Chicago.

Just a few years ago, farmers marveled as land prices began to rise in response to demand for corn to make ethanol. More recently, soaring prices for wheat, corn, soybeans and other crops have driven the increase. Corn futures on the Chicago Board of Trade closed at $7.27 a bushel on Tuesday, up from $3.70 a year earlier. Soybean futures were $13.67, up from $9.52 cents on March 1 last year. Average grain prices, adjusted for inflation, are nearing the giddy levels they reached in the late 1970s, the peak of the last disastrous boom-and-bust cycle for agricultural land.

That has regulators worried.

“History has taught us that it is nearly impossible to determine how much of the farmland boom may be an unsustainable bubble driven by financial markets,” said Thomas M. Hoenig, president of the Federal Reserve Bank of Kansas City, in testimony before the Senate Agriculture Committee last month.

Officials at Mr. Hoenig’s bank warn that farmers face a “huge” risk that rising interest rates, perhaps combined with falling crop prices, could undercut land values. Farmland values could drop by a third to a half in such a situation, Mr. Hoeing testified.

Prices have risen so far so fast that “it’s getting scary,” said Mike Green, a real estate auctioneer. He brought the hammer down last Friday on a 118-acre farm in Yetter, Iowa, that sold for $11,000 an acre, which he said was a record for farmland in Calhoun County, in western Iowa. In December, Mr. Green said, he got oohs and ahs when a parcel went for $9,300 an acre. Last fall, similar farms were selling for less than $8,000 an acre.

“It’s very hard to guess what a property will sell for these days because it seems like it’s been changing on a weekly basis,” he said.

Nationwide data from the United States Department of Agriculture shows that inflation-adjusted farm prices passed their 1970s peak several years ago, but that includes land, especially on the coasts, whose price rose when it was sold for development. University and Federal Reserve Bank surveys, which give a more accurate picture of the value of land used for farming, show that current prices are approaching the top of the last boom when adjusted for inflation.

Farmland values have been pushed up by several factors. As crops like corn, wheat and soybeans bring higher prices, the land on which they are grown becomes more valuable. Low interest rates have also contributed; they draw investors seeking an alternative to low-yielding certificates of deposit and the volatile stock market as well as create an incentive for farmers to buy more land rather than invest their profits elsewhere.

“Farmland has been a favored asset class in a world where a lot of other asset classes have fallen out of favor,” said Richard A. Brown, chief economist of the Federal Deposit Insurance Corporation.

The rapid rise in agricultural land prices has raised alarms at the F.D.I.C., which insures bank deposits and monitors the industry’s financial health. The agency sent a letter to lenders in December, warning them to not let high farm land values lull them into lax lending practices. Next week, the F.D.I.C. will hold a forum in Washington to discuss its concerns.

“If it were to be a bubble,” Mr. Brown said, “it would be in its formative stages.”

Today’s farmland market has some crucial differences from the 1970s bubble and the housing boom of the last decade. In the 1970s, another period of low interest and high crop prices, farmers loaded up on debt, using their farms as collateral. In the housing bubble, many buyers were seduced by gimmicky loans, such as subprime mortgages with floating rates, that magnified risk.

Today, farmers have about one-third less debt over all than they did at the peak of the last boom, according to U.S.D.A. data.

But a big worry for regulators is that farmers will start taking out loans on property they already own, based on today’s elevated values, and use it to buy more property or make other purchases. That would be similar to what farmers did 30 years ago and what homeowners did in the housing boom.

Jason R. Henderson, a vice president at the Omaha branch of the Kansas City Fed, said he had heard reports from bankers that such a pattern might be emerging.

Mr. Freking said he and his brother had made their latest purchase using all borrowed money. Their banker lent them half of the purchase price, and the rest of the money came from refinancing and consolidating loans on other property they owned, which are worth more at current land values.

He said there was some sticker shock at the price but the deal made sense because the land adjoined two other properties that the family farmed. He also got an attractive fixed interest rate of about 5 percent, although the loan must be paid off after eight years.

“Everybody’s talking big on commodities, so hopefully this pays out,” Mr. Freking said.

The rising prices have also brought in speculators. A survey by Iowa State University found that investors made a quarter of farm purchases in the state last year, a slight increase from 2009. “It’s been very aggressive as far as bidding action,” said Todd Hattermann, an auctioneer who sold a farm in Paullina, Iowa, about 30 miles from Le Mars, for $9,600 an acre last week. Investors, he said, were “running the values up. A lot of them may not be the final bidder but they’re bidding all the way through.”

There is no agreement on whether a bubble is emerging.

Michael D. Duffy, an agricultural economist at Iowa State University who conducts the annual land value survey, said the market appeared fundamentally sound and that land prices were responding properly to high crop prices. “If you’ve got good ground, it’s worth a lot of money,” he said.

Bruce Brock, the broker who sold the farm to the Freking brothers, exudes an optimism that would sound familiar to anyone who bought a home in 2006. “If you look from the beginning of farming in the United States to now, the long-term trend has been up,” he said. “There will be market fluctuations where it will go down. But in 10 years, I won’t be surprised if our $10,000 land is $20,000.”

http://www.nytimes.com/2011/03/04/business/04farms.html?pagewanted=1&_r=1&partner=rss&emc=rss

[keehah]

http://www.observer.com/hedge-funds-running-farms-05172011

"productive agriculture land with water on site" as it's going to be "very valuable in the future." (Like most of those asked to comment for this story to The Observer, Burry declined to discuss his investments in farmland.)

Three years later, the purchase of farmland both in America and abroad by outside investors has increased-so much so that in February, Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City, warned against the violent possibilities of a farmland bubble, telling the Senate Agriculture Committee that "distortions in financial markets" will catch the U.S. by surprise again. He would know, because he's seeing it in his backyard: Kansas and Nebraska reported farmland prices 20 percent above the previous year's levels and are on pace to double values in four years. A study commissioned by the Organization for Economic Cooperation and Development and released in January estimated the amount of private capital currently committed to farmland and agricultural infrastructure at $14 billion. It also estimated that future investments will "dwarf" what's currently being thrown into land, by two to three times. Further down, the study makes a conservative projection that the amount of capital potentially entering the sector over the next decade will fly past $150 billion.
Asked if the American public would eventually see a chance to invest in Old McHedgeFund's farm one day, the manager replied in the affirmative: "Yes. Without a doubt." He estimated it would be only a few years before this happened. Just two weeks ago, Bloomberg Businessweek reported that El Tejar SA, the world's largest grain producer, is planning on selling $300 million of bonds this year before a planned IPO. The plans for the IPO will be fast-tracked pending the sale of the bonds. If farming IPOs begin to emerge en masse, then farming-already often a dicey proposition simply on the basis of its being difficult to do correctly, the volatility of the weather and the possibility of entire crops going bad-may be vulnerable to a bubble.

There is, of course, a slightly more sinister reason to develop a sudden interest in agriculture. Last year, Marc Faber recommended to anyone: "Stock up on a farm in northern Norway and learn to drive a tractor." He sees a "dirty war" on the horizon, playing on fears of a biological attack poisoning food supplies. Those sort of fears drive capital into everything from gold (recently at an all-time high and a long-time safe haven for investors with currency concerns) to survivalist accoutrements. In this particular case, one might buy the farm in order to avoid buying the farm.

That may seem extreme, but even the lesser scenarios are frightening to some. When asked if this is an end-of-the-world situation, the hedge fund manager replied: "It really is. I tell my fiancée this from time to time, and I've stopped telling her this, because it's not the most pleasant thought." He pauses for a moment. "We just can't keep living the way we're living. It'll end within our lifetime. We're just going to run out of certain things. We'll just have to learn how to adjust."

[steel_ag]

Source: http://gonzalolira.blogspot.com/2011/05/spg-supplement-is-farmland-smart-hedge.html

"SPG Supplement: Is Farmland A Smart Hedge Against Inflation?

This piece originally appeared in the Strategic Planning Group, as a Supplement exclusively for Members. It has been edited for content.

So recently, the New York Observer ran one of its snooty, fawning pieces about hedgies in New York.

“So you’ll give me 2% of your money up front,
then 20% of any winnings,
plus you’ll eat all the losses on my bad bets:
Isn’t that a great deal I’m giving you?”
Hedgies—hedge fund drones, essentially used car salesmen dolled up in Paul Stewart suits—are morons, for the most part; though they do display a certain rat-like cunning of the low-IQ variety.

That sharp-toothed rodent cunning was on display in the Observer story: These hedgies were boasting about buying farmland left and right, as a hedge against inflation.

So: Is farmland worth buying as a hedge against inflation?

This is a reasonable question.

Bottom line, the answer is: No.

The reason, however, is worth examining in some detail, because insofar as farmland is concerned, there would be a period of time when it is a clever investment, and then a point after which it would be a terrible investment. And as with everything in life, the dividing line between the terribly clever and the terribly stupid is as smeared and undefined as roadkill on an Interstate....."

[MNeagle]

Down on the farm, investors see big potential


Bernard Condon, AP Business Writer, On Friday July 15, 2011, 11:37 am

NEW YORK (AP) -- Braden Janowski has never planted seeds or brought in a harvest. He doesn't even own overalls.

Yet when 430 acres of Michigan cornfields was auctioned last summer, it was Janowski, a brash, 33-year-old software executive, who made the winning bid. It was so high -- $4 million, 25 percent above the next-highest -- that some farmers stood, shook their heads and walked out. And Janowski figures he got the land cheap.
"Corn back then was around $4," he says from his office in Tulsa, Okla., stealing a glance at prices per bushel on his computer. Corn rose to almost $8 in June and trades now at about $7.

A new breed of gentleman farmer is shaking up the American heartland. Rich investors with no ties to farming, no dirt under their nails, are confident enough to wager big on a patch of earth -- betting that it's a smart investment because food will only get more expensive around the world.

They're buying wheat fields in Kansas, rows of Iowa corn and acres of soybeans in Indiana. And though farmers still fill most of the seats at auctions, the newcomers are growing in number and variety -- a Seattle computer executive, a Kansas City lawyer, a publishing executive from Chicago, a Boston money manager.
The value of Iowa farmland has almost doubled in six years. In Nebraska and Kansas, it's up more than 50 percent. Prices have risen so fast that regulators have begun sounding alarms, and farmers are beginning to voice concerns.

"I never thought prices would get this high," says Robert Huber, 73, who just sold his 500-acre corn and soybean farm in Carmel, Ind., for $3.8 million, or $7,600 an acre, triple what he paid for it a decade ago. "At the price we got, it's going to take a long time for him to pay it off -- and that's if crop prices stay high."
Buyers say soaring farm values simply reflect fundamentals. Crop prices have risen because demand for food is growing around the world while the supply of arable land is shrinking.

At the same time, farmers are shifting more of their land to the crops with the fastest-rising prices, which could cause those prices to fall -- and take the value of farms with them. When the government reported June 30 that farmers had planted the second-largest corn crop in 70 years, corn prices dropped 8 percent in two days.

And even if crop prices hold up, land values could fall if another key prop disappears: low interest rates.

When the Federal Reserve cut its benchmark rate to a record low in December 2008, yields on CDs and money market funds and other conservative investments plunged, too. Investors were unhappy with earning less, but they were too scared about the economy to do much about it.

As they grew more confident -- and more frustrated with their puny returns -- they shifted money into riskier assets like stocks and corporate bonds. To many Wall Street experts, this hunt for alternatives also explains the rapid rise in gold, art, oil -- and farms.

Those who favor farms like to point out that, unlike the first three choices, you can collect income while you own it. You can sell what you grow on the farm or hand the fields over to a farmer and collect rent.

In Iowa, investors pocket annual rent equivalent to 4 percent of the price of land. That's a 60-year low but almost 2.5 percentage points more than average yield on five-year CDs at banks. That advantage could disappear quickly. If the Fed starts raising rates, farmland won't look nearly as appealing.

For now, though, investors can't seem to get enough of it.

At a recent auction of 156 acres in Iowa, the 50 or so farmers who showed up withheld their bids out of respect for a beloved local farmer who had rented the land for two decades and wanted to own it. But his final bid of $1.1 million was topped by a California insurance executive. In Iowa, 25 percent of buyers are investors, double the proportion 20 years ago.

"They were angry, but what are they going to do about it?" says Jeffrey Obrecht of Farmers National, the brokerage that ran the auction. He told the farmers they shouldn't worry because some of the new investors will find a new way to make money in a few years and start selling their land.

Other dangers lurk for investors. In Iowa, corn prices are high partly because corn is used to make ethanol, a fuel additive subsidized by the federal government. The U.S. Department of Agriculture expects 40 percent of the nation's corn crop this year will go to factories that make it. But with Washington running up record deficits, it's anyone guess how long the subsidy will remain.

As with stocks, U.S. farms can swing wildly in value along with the economy. Despite the fragile recovery, though, farm prices are nearing records now, capping a decade of some of the fastest annual price jumps in 40 years. In Iowa, farm prices rose 160 percent in the decade through last year to an average $5,064 per acre, according to Iowa State University.

Concern that farm prices may be inflated is serious enough that the Federal Deposit Insurance Corp. held a conference for farm lenders in March titled "Don't Bet the Farm." Thomas Hoenig, head of the Federal Reserve Bank of Kansas City, oversaw dozens of bank failures when a farm boom turned bust 30 years ago. Today, he suggests prices may be in an "unsustainable bubble."

Veteran bond trader Perry Vieth doesn't think so. Vieth, the former head of fixed income investments for PanAgora Asset Management in Boston, started buying farms with his own money five years ago, when buyers with no farming experience were rare.

"Agriculture was sleepy," he says. "People looked at me like, `What are you doing?'"

Now he's buying for 71 wealthy investors. Ceres Partners, his 3 1/2-year-old private investment fund, owns 65 farms, almost half bought since November. He says he's returned 15 percent annually to his investors overall.

Though Vieth says prices in some places have climbed too high -- he won't buy in Iowa, for instance -- he says the price of farms elsewhere will rise as big money managers start seeing them as just another tradable asset like stocks or bonds and start buying.

"When Goldman Sachs shows up to an auction, then I'll know it's time to get out," he says.

Janowski, the Tulsa software executive, is bullish for other reasons. A self-described serial entrepreneur, he has built four companies, including a software developer that he sold for $45 million three years ago.

Listen to him speak, though, and you'd think he was an economist. He'll talk your ear off about how inflation could rage out of control, and how farmland is more likely to keep up with inflation than other assets. Janowski sold all his stock in April.

He plans to move most of his money into farms and has clearly done his homework. In the past five years, he has flown to more than a dozen farms up for sale, often with an agronomist in tow. Before bidding on that Michigan farm last summer, he visited five times to walk the property, which includes a house and land for commercial development as well as tillable fields.

The day of the auction, which drew more than 100 bidders to the Century Center in South Bend, Ind., he didn't leave anything to chance. Janowski arrived two and a half hours early to get a seat near the entrance so he could size up rival bidders as they walked in.

Then he kept quiet as an auctioneer carved the farm up into lots numbered 1 through 40 and began taking bids for each. After 30 minutes, Janowski broke his silence with an offer to buy the whole thing: "One through 40 ... $4 million." For the tillable parts, he figures he paid about $6,000 an acre.

"I'm probably on the fringe of being a nut job," he says. "But as each month goes by, I become less nutty."

http://finance.yahoo.com/news/Down-on-the-farm-investors-apf-2437798760.html?x=0

[Dogman]

Let me see, these investors are buying crop land, hoping to make money on their investment. Maybe if they have the cash, to buy the land outright, they may. Food shortages are a world reality, so there will always be a market for their crops. But there are factors beyond anyones control, mother nature (big one), and as said above, interest rates, crop prices, etc, etc. But if they have to make payments to repay the loan they took out to buy the land. That maybe a horse of a different color.

Irrigation works great, but some of the big aquifers the water levels are dropping fast, farms and others are taking water out of the ground faster than nature can recharge them. And running deep well pumps of that size are not cheap.

A bigger thing, not mentioned was these guys are buying small farms compared to the industrial ones. And economy of scale comes into play. For the small player to make it, they would need perfect weather, crop prices, etc, etc, year to year and farming does not work that way. For every good year you may have several not so good or worse.

Other than driving the price of land up for the real farmers, these investors need to find some other sand box to play in.

No good can come from investors like the o/p and above getting into something that they have no business in. In the long run it can only cause hurt.

[MNeagle]

Farmland prices in the Midwest soar

http://i2.cdn.turner.com/money/2011/11/16/real_estate/Midwest_farmland_prices/farmland-harvest.gi.top.jpg

NEW YORK (CNNMoney) -- Agricultural land value is soaring in the Midwest, with parts of the region surging 25% from last year, according to two recent Federal Reserve surveys. The jump is the highest increase in three decades.

Record farmland prices are also being reported in the northern Plains.

Surveys released by the Kansas City and Chicago Federal Reserves Tuesday find that despite a struggling U.S. housing market (http://money.cnn.com/2011/10/26/real_estate/new_home_sales/index.htm?iid=EL), agricultural in their districts is booming. And the run-up in prices may have yet to peak, they said.

"District farmland values surged to a record high in the third quarter," the Kansas City survey said. "Cropland values rose more than 25 percent over the past year, and ranchland values increased 14 percent."

In particular, Nebraska experienced exceptionally strong gains in the Kansas City District due to bumper crops -- especially productive seasons for certain crops -- reporting a roughly 40% rise in farmland prices from one year ago.

The surveys indicate that good credit conditions, successful harvests, and elevated levels of farming income helped to contribute to this large surge in an already strong agricultural property (http://money.cnn.com/2011/01/19/real_estate/farm_prices_rise/index.htm?iid=EL) market.

According to the Chicago Fed, farmland values in its district had their largest increase since 1977, jumping 7% from the previous quarter.

Iowa farmland prices led the Chicago Fed's district, jumping 31% from last year's 3rd quarter.

0:00 / 2:37 Turning farmland into oil fields

However, not every state in the region had such historic success.

The southern Plains, Oklahoma in particular, saw more modest increases -- mainly due to devastating droughts, affecting yields from crops and livestock. http://i.cdn.turner.com/money/images/bug.gif (http://money.cnn.com/2011/11/16/real_estate/Midwest_farmland_prices/index.htm?hpt=hp_t2&iid=EL#TOP)

http://money.cnn.com/2011/11/16/real_estate/Midwest_farmland_prices/index.htm?hpt=hp_t2

[steel_ag]

relatives considering allowing wind farm on their farm

$4,000/month minimum + % from $$ from electricity generated from wind

[osoab]

relatives considering allowing wind farm on their farm

$4,000/month minimum + % from $$ from electricity generated from wind


I wouldn't live any where near them. I would have them look up stories of folks that live too close.