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Big Demand Driving Up Prices For Farmland
Big Demand Driving Up Prices For Farmland

Originally Appeared On : "dispatch.com"

By  Mary Vanac
February 10 ,2013

Ohio farmland prices have spiked in recent years as farmers and investors wrestled over a small number of farms for sale.

Farmers have won many of the latest land bids, but investors are ready to jump back into what could be Ohio’s hottest real-estate market.

“If someone was thinking about selling their farm, now is definitely a good time,” said Robert McNamara, Ohio representative for Halderman Real Estate Services and Farm Management in Wabash, Ind.

The average price for an acre of tillable land hit $5,000 in Ohio last year, said Cheryl Turner, director of the U.S. Agriculture Department’s National Agricultural Statistics Service field office in Reynoldsburg. That’s up 24 percent from $4,020 in 2008.

By comparison, Ohio’s home prices, while on the rebound in recent months, have fallen nearly 10 percent since the beginning of 2008, the year a residential real-estate bubble fueled by mortgage-loan speculation burst, according to economic data published the Federal Reserve Bank of St. Louis.

Ohio farmland has sold for as much as $7,500 an acre, according to the Farmers National Co. Prices have been even higher in Illinois, Indiana and Iowa, said Roger Hayworth, area sales manager for the Omaha, Neb., company that manages, appraises and sells farmland.

Over the past year, Ohio farms — including houses and farm buildings — have sold for between $6,000 and $13,600 an acre, said Barry Ward, assistant professor of production business management at Ohio State University Extension.

Ohio farmland prices are rising for several reasons. For one, farmers who grow crops such as corn and soybeans have earned record income from their land during the past several years. As a result, they understandably want to buy more land.

Unlike in previous decades when bumper crops drove down prices, increasing use of corn and soybeans to make nonfood products from fuel to plastics is pushing those prices up.

But high farm profits are not enough to drive farmland prices, Ward said. Interest rates also are at historic lows, making farm mortgages affordable, he said.

And tightening clean-water regulations are causing some livestock and poultry farmers to buy land on which they can spread manure from their animals, Ward said.

The investor side of the land-price equation is being driven by returns — or lack of them — on Wall Street.

“With so much uncertainty in the stock market, a lot of people think their best bet is putting money into farmland,” said Halderman’s McNamara. Halderman manages farmland and appraises, sells and auctions farms.

That’s also the reason people aren’t selling their farms. “Land is returning a lot more (value) than bank CDs or money-market securities,” said Farmers National’s Hayworth.

Farmers look at land purchases differently than investors do, said Ron Beitzel, owner of Four Seasons Land Co. in Westerville, which handles farmland sales.

“They’re buying for the next two or three generations,” Beitzel said. But investors are buying for cash flow from leasing the land and then selling it for a gain in 20 years, he said.

Some farmers are holding onto their land so they can profit from lucrative leases with oil and gas companies, said Jenny Culp, a Realtor with Coldwell Banker King Thompson in Pickerington.

These companies are leasing vast areas of eastern Ohio where they can use hydraulic fracturing to draw natural gas from deep underground.

Gas leases average $2,500 an acre and royalties 15 percent in Ohio, according to an economic-impact report by the Ohio Shale Coalition. “I’ve talked to several people who own land in the Lancaster area, and they’re holding out for this ‘fracking’ thing,” Culp said.

The high demand and low supply of farmland have created an ideal environment for auctions. “If you took a Grade A farm and put it on the market right now, I wouldn’t want to put a number on it,” Haldernan’s McNamara said.

There’s something about the emotion and competition in auctions that draw the highest prices. “ That’s why we encourage auctions,” he said.

There’s at least one downside of high farmland prices: Young or beginning farmers have a hard time buying land to start their enterprises.

And some people wonder whether a bubble is forming in agricultural land the way it did years ago in residential land. But most experts think farmland prices will level off rather than decline.
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Buying and selling of agricultural land can be very complex.  To help you tackle the issues surrounding agricultural land transactions, Farms.com Real Estate has compiled a list of experts in the areas of agricultural economics and land values. 

University of Illinois

Department of Agricultural and Consumer Economics, Extension Specialist, Farm Management
Gary Schnitkey
schnitke@uiuc.edu

Department of Agricultural and Consumer Economics, Extension Specialist, Farm Management
Dale Lattz
d-lattz@uiuc.edu

Iowa State University

Michael Duffy
mduffy@iastate.edu
http://www.econ.iastate.edu/faculty/duffy/landnew.html

Kansas State University

Kevin Dhuyvetter
Professor and Extension Specialist, Farm Management
kcd@ksu.edu

Terry Kastens
Professor and Extension Specialist, Farm Management
tkastens@agecon.ksu.edu

Michigan State University

Stephen Harsh
Professor and Extension Specialist in Agricultural Economics
harsh@msu.edu

Eric Wittenberg
Outreach Specialist
wittenbe@msu.edu

University of Minnesota

Philip Raup
Professor Emeritus
praup@umn.edu

David Bau
Agricultural Business Management, Agricultural Business Management
bauxx003@umn.edu

 

 

 

 

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