Depending on which side of the table they are on, farmers will talk differently about U.S. agricultural policy. Those that see profit argue for subsidies and the volatile market for crops and commodities. Others struggle to make ends meet and advocate change in the subsidy structure and the market that encourages overproduction. For investors, times have never been better for buying up farmland, with interest rates at historic lows. Land values are now increasing at up to 8% per year, while commodity prices being as high as they are making investing in farmland very lucrative. All of this in a time where economic troubles persist and when traditional investments, particularly money market investments on Wall Street, are considered too risky.

Crops are also attributing to the situation. The high prices of corn and soybean are yielding support for investors because they raise the value of the land, and are expect to do so into 2012. Department of Agriculture experts see no reason why this won’t hold up. Economist Scott Stiles with the University of Arkansas Division of Agriculture said high commodity prices, along with low interest rates for loans, real estate, and equipment are favorable for investors. The demand for crude oil in farm operations is not much of a concern, since prices have dropped with economic woes, although daily supplies like seed and fertilizer remain high in cost along with soybeans and corn.

Like other markets that have sustained a boom for periods of time, like the housing market, other experts worry that the farmland market could go bust at some point. The housing bubble burst and wrecked havoc on the real estate market. At the same time, low mortgage rates are helping investors as they buy up farmland. Borrowing costs have helped as well, with an average rate of 5.8% on variable-rate mortgage loans for farmland between April and June 2011. Heartland rates were the lowest, while mortgage rates were higher in areas affected by drought like Oklahoma and Texas. Reasonable rates across the board have allowed more buyers to seek out farmland as the situation has been favorable for more investors to afford it.

What few people outside the farming industry realize is that there is a volatile economic market in play. Investors have caught on quickly and have bought up a significant portion of Midwest farmland, which could prove valuable as they cash in down the road. While other markets recover from the recession, agriculture remains a place to put their money in, but how long the bubble continues to expand is anyone’s guess. The low interest rates and high land prices favor investment deals. Whether another bubble burst in the future is uncertain, but hopefully by then the housing market, equity markets, and other targets of investment will be lucrative once again. For now, many investors continue to keep their eye on the farm and are doing quite well this way.

Sources:

Delta Farm Press (http://deltafarmpress.com/markets/low-interest-rates-and-farmland)

 Farmland Investor Center (http://www.farmlandinvestorcenter.com/farmland-power-menu/landowner-resources/farm-mortgage-rate-watch)