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Farmers advised to keep greed in check when buying land
Source: Iowa Farmer Today, by Gene Lucht
February 25, 2008

A booming energy market and rising worldwide demand for ag commodities have combined to push up the price of farmland.
IFT photo by Mindy Ward  
 
 
  

DES MOINES --- The national economic outlook might be dark and dreary, but the forecast for farmland values remains hot.

But, there is reason for caution.

“I’m very bullish on production agriculture,” said Moe Russell, president of Russell Consulting Group in Des Moines.

But, he added most economic cycles feature a bell curve, and farmers should be careful not to get too greedy when it comes to land purchases.

Russell offered his thoughts at the first Iowa Land Investment Expo this past week, an event that attracted 300 farmers, investors and Realtors to talk about the farmland market outlook.

“There’s a worldwide increase in demand for natural resources,” said Don DeWaay of DeWaay Capital Management in Clive.

He noted the hot energy market, expansion of the ethanol market, increased demand for ag products in China and India, and the low value of the dollar have combined to boost commodity prices in the Midwest and to push up farmland prices.

The average value of Iowa farmland reached $3,908 per acre as of Nov. 1 of 2007, according to Iowa State University officials, who conducted an annual land values survey. That marked an increase of over 22 percent in the previous year.

DeWaay said one item that could temper future land value increases is the national economy is struggling.

“We’re teetering on the edge of a recession. We are in a slowing economy.”

That doesn’t mean farmland values will collapse soon, he adds. But, it means farmers should look at purchases and sales on a case-by-case basis.

“There’s good deals, and there’s not so good deals.”

Among the items that are still unknowns are: the future of cellulosic ethanol, possible changes in the federal estate tax, influence of the 2008 farm bill, whether the price of oil will remain at present levels and how deep the apparently upcoming recession might be.

Prices for corn and other commodities appear to have climbed to a new plateau, Russell said, and so long as energy prices remain high those commodity prices might fluctuate greatly but not collapse. There is great optimism.

“I believe the future for rural America today is brighter than at any time in my lifetime,” said Tom Dorr, USDA under secretary for Rural Development.

Alternative fuels, such as ethanol and biodiesel, are part of the reason for that optimism, Dorr said.

There are many questions to be answered regarding the market for those fuels, such as whether the market will move from an E10 ethanol blend to E20 or E30, but the trend appears to be good.

“The train has left the station and this train is picking up speed,” he said. “It’s gonna be a heck of a ride.”

Back on the land front, there is little doubt interest is high, said Steve Bruere, president of People’s Co., a Indianola real estate brokerage firm.

Bruere, who organized the conference, said farmers and investors are very interested in farmland right now.

“The question I get every day is what land values are going to do, and I have no idea,” he added. “There is a lot of uncertainty.”

Russell advised farmers to use common sense.

Farmland continues to be a good investment, he said, but farmers should not expect values to jump 22 percent every year. Over the past 50 years, values have averaged a 4.3 percent increase per year.

He also told farmers to diversify and not put all their economic eggs into one basket.



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