Some of the bulls in this year’s grain rally aren’t buying corn and soybeans. They’re snapping up the land itself.
As corn prices this summer raced to record highs, farmland values tagged along. Prices for prime corn and soybean fields surged up to 30 percent in the past year, as buyers competed for the few available plots.
“No one expected $5 corn a year ago, and I didn’t anticipate this big an increase in land values,” said Randy Hertz, vice president at Hertz Farm Management Inc. in Nevada, Iowa, a farm brokerage. “There isn’t a lot available in the market because it’s all been sold.”
Across the corn belt, the jump has been dramatic. A fertile acre of central Iowa now fetches $2,700 to $2,900, up from $2,000 to $2,200 a year ago, brokers said. Recent sales of flat, black earth in Champaign County, Illinois - among the best farmland in the world - have fetched up to $4,850 an acre, some 10 percent to 15 percent above values earlier in the year.
The run has been more pronounced in the eastern corn belt than west of the Mississippi River, where local corn prices are often lower and laws can limit institutional ownership of farmland.
Amid the frenzy, some buyers are keeping a wary eye on the market. To veterans, it looks too familiar. When grain markets took off in the early 1980s, farmers borrowed against the inflated values of their fields to buy more, literally betting the farm for the chance to grow more crops. When corn prices collapsed, debt-drowned owners sold out, sending the market plummeting.
This time around, farmland buyers flush with cash are avoiding debt, paying all or almost all upfront. Farmers’ incomes could set a record again this year, and the profits are going right back into tractors, seed, fertilizer - and more land.
The buying has come from both large corporate operations and individual producers, which collectively control a vast majority of American farmland.