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Aug. 6, 2012 by Jim Farrell, AFM, President and CEO, Farmers National Co., Omaha, NE With demand for agricultural land in this country continuing at a feverish level, the good times continue for production agriculture! The land market has been on fire since late 2006, taking only a couple of breathers over the last five years. At Farmers National Company, we estimate that top land in our 24-state service area has increased in value by 5% to 10% just since January of this year. This is on top of 20% to 30% increases in 2011 in many states. The fundamentals that are driving the land market remain firmly in place as of this writing, led by high grain prices. Growth in the use of ethanol and world demand for our grains along with reduced supplies has led to record incomes on the farm. Farmers have been spending those profits the last several years on updated machinery, new grain bins, new irrigation systems, other farm improvements, and, of course, they have been buying farm and ranch land! Other fundamental market influences include the after effects of the recent recession: 0% interest rates as set by the Federal Open Market Committee to stimulate economic growth. The exceptionally low interest rates have certainly stimulated the farm economy. With few "safe" alternative investments to consider, farmers and investors alike have been flocking to farmland. Many land sales today include limited financing as buyers continue to use their own cash. This is a positive sign for the market and an indicator that we should not experience a farm recession similar to the 1980s again. There are still some warning signs indicating that the market is overheated in some areas and could eventually slow down. The cost of crop production continues to increase as both cash rents and input costs have escalated to record levels. Crop insurance provides an excellent risk management tool for operators to manage this input cost risk in the short term. Longer term those increased costs could be a challenge. Grain prices are very volatile now with the early predictions of a record corn crop now being modified daily due to the ongoing severe drought in much of the country. Of course, the economic turmoil in Europe also affects our markets. As problems arise in that part of the world, the value of the dollar strengthens causing an increase in the costs of our grains to our export customers. Despite these warning signs, the near and intermediate term outlook for agriculture remains very bright! Landowners and farm operators have had an opportunity to sell their 2012 crops at very profitable levels. Even the 2013 crop prices have been good enough for many to start pricing. Land sales may slow down seasonally this summer, but barring a major fundamental change in our market, the strong land market should continue well into next year. So sit back and let the good times roll! Tweet |
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