Tuesday, October 23, 2012

Farmland Prices Keep Rising

NYT:
According to an agriculture land survey by Iowa State University, prices have risen 32 percent since 2010. Statewide, farmland prices averaged $6,700 an acre, the highest ever, even after adjusting for inflation. Four years ago, prices averaged $3,900 an acre. Because of the strong demand for farmland, banking regulators fear that farmers could take on more debt to make purchases, a repeat of the 1970s and early 1980s, when overleveraged farmers used their farms as collateral to buy up more land. The resulting debt led to a slew of bankruptcies and plummeting land values. Those days are fresh in the mind of John Kintzle, 68, who lives near Cedar Rapids and attended the auction here in north-central Iowa just to observe. Back then, he said, prices dropped from $3,000 an acre to $1,000 an acre in three years......
Regulators, however, say that despite the continued growth in farmland prices there are reasons to be cautious. Some lenders have reported that a number of farmers are taking out loans based on the current value of their land to take advantage of the farmland boom.
Fed officials and some real estate brokers said these buyers could be in trouble if interest rates rose and crop prices fell. This could cause farmland values to drop by a third to a half, putting farmers at risk of default. Another risk is that if the drought stretches into multiple years, it could interrupt the boom in farmland prices, officials said.
I don't see as many stories about land being bought with cash, so I'm guessing most of the purchases are heavily financed.  At least that meme is going away.

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