Farmland Prices Feed Tension between Farmers and Financial Investors

Alex Tiller - Thursday, September 15, 2011

 

Two facets of the well-being of the United States seem to be invariably linked – farming and the economy. From Kansas to Indiana, Oklahoma to Iowa, the way farming is conducted has changed drastically over the past few years as economic tensions have affected both production and the way a farming business is run. Investors who have lost out on stocks and bonds during the recession have turned to farming as an investment. Whether farmers are happy or not, outsiders looking to profit off the land are not going anywhere, at least for now. The fast rising prices of crops have led to increased production. Corn stands at $7 per bushel as of July 2011 and both farmers and their investor partners are rushing to have a stake in the profit.

 

Farmer Robert Huber bought a corn and soybean farm 10 years ago in Carmel, Indiana. Recently he sold the 500 acre farm for three times what he originally paid. Deals like this are taking place across the Midwest, and farmers are profiting, even if it means turning in the ownership of their land to someone who has never been on a farm before. However, this phenomenon, as lucrative as a deal it may seem for both parties, could have a limited lifespan. Crop prices are rising as the demand for food worldwide keeps rising, at the same time there is less and less land suitable for farming.

 

Based on the principles of supply and demand, as well as simple profit, farmers are planting the crops that are rising in price the fastest. If this trend continues, the prices will eventually fall, but at the same time the value of the farms planting the crops will drop too. Thus, the current momentum unravels. The double-edged sword here is that taking advantage of business and financial opportunities, on the part of both farmers and investors, could lead to more financial hardship than both have already faced in tough economic times.

 

Still, the pace continues to pick up. Low interest rates have persisted and investors have not earned nearly as much as they would like to from investments such as CDs and money market funds. Moving their money into corporate bonds and stocks, the more risky of financial assets, investors have found comfort in farms because they can collect income in three ways - by owning the farm, selling what is grown, and charging rent to farmers.

 

In Iowa, local farmers have expressed anger over the trends, but have nothing to do to change anything. Investors are hungry. A farmer in Iowa sought to buy his farm which he rented for two decades, and dozens of his local farming neighbors actually withheld their bids in support. An insurance executive eventually bid over $1 million for the property and purchased the farm nonetheless. In fact, it has been reported that one-quarter of farm buyers in Iowa are investors, but the farmers seem to be holding on to their loyalty of their land and each other.

 

The tide will turn again in a few years, according to Jeffrey Obrecht of brokerage firm Farmers National, and investors will soon sell back the land as new profit ventures are discovered. Even investors themselves are wondering if money managers will see farms as tradable as stocks or bonds. For now, both farmers and investors are at the mercy of a slowly recovering economy and what appear to be avenues for profit in the short term.

 

Source:

MSNBC, Down on the Farm, Investors See Big Potential (http://www.msnbc.msn.com/id/43802778)