Farmland prices rise faster than some Manhattan and London apartments By Jeff Wilson Bloomberg News Published: February 20, 2007 CHICAGO: Farmland from Iowa to Argentina is rising faster in price than apartments in Manhattan and London for the first time in 30 years. Demand for corn used in ethanol increased the value of cropland 16 percent in Indiana and 35 percent in Idaho in 2006, government figures show. The price of a Manhattan loft rose 12 percent, while a pied-à -terre in Islington, near London's financial district, gained 11 percent, real estate agents said. Farmland returns "will take a quantum leap over the next 18 months," after corn prices surged to a 10-year high in February, said Murray Wise, the chairman and chief executive officer of Westchester Group in Champaign, Illinois, who oversees land investments. Wise, who was born on a Canadian farm and now manages 85,000 acres, or 34,400 hectares, said prices in the U.S. Midwest might gain 12 percent a year through 2017. Farmland rose in value in 34 of the past 37 years, according to data compiled by UBSAgriVest, a unit of UBS, the world's biggest money manager. The returns are attracting hedge funds and investment brokers. Hancock Agricultural Investment Group in Boston purchased $100 million of farmland in the past year, increasing its holdings by 13 percent to $865 million. Macquarie Bank, Australia's largest securities firm, plans to spend as much as 1 billion Australian dollars, or $787 million, on ranches in Australia for a new agricultural fund. Today in Marketplace by Bloomberg Volkswagen profit rises sharply on performance of Audi and Skoda brands As regulation crimps U.S. IPO business, anxiety is rising Pergam Finance, an investment company in Paris, two years ago started Campos Orientales, a fund that buys farmland in Argentina and Uruguay. The company formed a venture with Bellamar Estancias, owned by the Hirsch family of Argentina, that managed 120,000 hectares and planned to raise $70 million for land acquisitions. In Queensland, the biggest cattle- grazing state in Australia, land rose by about 10 percent to 500 to 550 dollars an acre in 2006, said Dick Allpass, a rural property consultant at Elders Australia in Adelaide. Orders for food and feedstock from China in the past five years helped bolster prime Australian farmland by as much as 300 percent, said Wayne Carlson, general manager for agribusiness at National Australia Bank in Melbourne, the country's largest lender. "That rise of the last few years is what has made some of these fund managers and investment groups" wonder "why aren't we in this?" Carlson said. Average U.S. farm prices increased 15 percent in 2006, Agriculture Department data showed. The cost of buying corn farms in Argentina, the world's second-largest exporter of the grain, jumped 27 percent, according to a Buenos Aires industry newsletter, Márgenes Agropecuarios. Marc Faber, an investor based in Hong Kong, said one of his favorite stocks is Cresud, a landowner in the Pampas region of Argentina. The shares jumped 63 percent last year. Farmland is "very inexpensive in a world of inflated asset prices," he said during an interview this month from Bermuda. The demand for corn used in ethanol got a lift from President George W. Bush last month, when he urged a fivefold increase in renewable fuels by 2017. To meet Bush's goal, 12.5 billion bushels of corn would be needed, 19 percent more than was harvested last year in the United States, the world's biggest producer. "It is not the investor that is pushing up land prices, it is the surge in corn prices from ethanol demand," said Jim Farrell, chief executive officer at Farmers National in Omaha, Nebraska, which manages almost 1.2 million acres of farmland on 3,700 farms. The rally has been helped by a reduction in the number of acres available for planting. About 5 million to 8 million hectares of the world's total of 1.5 billion, or 3.7 billion acres, of farmland goes fallow each year because of deteriorating quality, according to the Worldwatch Institute in Washington, which does research on food production. "Ethanol is not the only story here â it is just the one getting headlines," said Jeff Conrad, president and managing director for Hancock Agricultural, a unit of Manulife Financial. "The supply side is the big unknown because we know demand is rising." U.S. farmland declined by 9.6 million acres, or 2.8 percent, in the two decades that ended in 2001, according to the most recent data available from the government. Jim Rogers, the hedge fund manager who predicted the start of the commodity rally in 1999, said global warming would hinder crops and advised purchasing farmland for at least a decade. "Because of the disruptions, agricultural prices will go through the roof," he told reporters in Melbourne earlier this month. eturns from farmland have averaged 10.9 percent annually the last 15 years, the National Council of Real Estate Investment Fiduciaries in Chicago said. The Standard & Poor's 500-stock index has risen 10.7 percent each year, while the return from the Lehman government bond index was 6.3 percent. Home prices fell in half of the cities in the United States last quarter, the National Association of Realtors said last week. Prices in 70 U.S. cities including Las Vegas and Washington may drop 10 percent or more between now and 2009 on higher borrowing costs, said a study by Economy.com, a Moody's unit. Land in Iowa, the biggest U.S. producer of corn and home to the most ethanol plants, surpassed $5,000 an acre, up from a high of $4,200 a year ago, said Monty Meusch, a vice president for Farmers National, a property broker and farmland manager in Omaha, Nebraska. A 200-acre Iowa farm increased 14 percent in a month when it sold for $5,700 an acre in October, he said. "Three years ago people were skeptical about investing in farmland," said Olivier Combastet, founder of Pergam. "It's become much more sexy." He anticipates annual returns of 15 percent in the next five years from his South American land investments.
Most of my retirement = long-term investment funds are plowed into (couldn't resist) raw land. They ain't making any more of it, too much gets paved under every year, and just like acreage, standing timber prices have never gone down since the pilgrims stepped ashore. 100% risk-free money... no joke about it this time
most farm land sells by auction. just pick any paper in a midwest city. i have 500 acres in south dakota i will sell you for 1000 per acre.
1000 per acre, that sounds cheap compared to where I am in NY. We dont even get to buy acres. Usually 50X50, 50X 100 lots sell for hundreds of thousands. ill buy 10 from you and hopefully in 20 years there worth 50,000.
I find local land mostly by listed sales. For example, I've been watching a plot here of 200 acres and an old house listed for roughly $300k. The house and five acres would probably fetch +/- $100k, leaving the acreage at $1,000 per. There is a plot of woods there which can be logged in stages, starting about five years from now. Timber may be worth $40k inside of ten years. Lots of road frontage, could sell building lots, and the area is growing rapidly with housing developments. I'd be content to sit on it for ten - twenty years and enjoy the recreation, then worry about what gets distributed how when the time comes. Blocks of land are commonly found, but good deals get tougher and the blocks are becoming fewer. The next real estate boom will not be sticks & mortar... the specs will be dealing mostly with raw land.
I remember Jimmy Rodgers advocating farm/raw land years ago. We still have much North and South Texas land at less than $100/acre basis with (producing) water and (producing) mineral rights....some for sale....some not yet. Bids?
What's maintenance, taxes, etc. on raw land? There is a ton of cheap land upstate NY thanks to globalization. Almost no industry and no jobs left out there, but many farms.
I am under the belief that the downside to raw land has always been owing something you have to have pay taxes on which in most cases, doesn't provide an ROI. This thread does make me look at raw land differently.
Have any of you guys ever flown over the USA? This notion that "they aint making any more of it..." although true, has a false implication that were somehow running out and dropping supply will drive prices up. There is a ton of land, were not running out of space in our lifetimes.