Midwest Farmland Exchanges: Cause of High Land Values or Merely Effect?

The answer depends upon who you ask, but my personal opinion is that high Midwest farmland values are a lot more likely the result of the increased need for corn to be used in the production of ethanol than land owners using Section 1031 exchanges to increase their holdings. Corn prices have languished around $2.00 per bushel for years up until the last fifteen months or so. There is a chart here that shows corn pricing since the early 1970’s. This chart goes through the very early stages of 2007, and please see the comment in pink on the chart: “Bulls’ next upside price objective is $4.00,” meaning that speculators who thought that corn would continue rising in price were looking for the possibility of $4.00 per bushel in early 2007. Folks, we’ve hit $5.00 per bushel now, fully 20% more than ten or eleven months ago!

As grain prices go, so goes the price of land. If a farmer can realize $5.00 per bushel for his corn, he can afford to pay a little more for nearby acreage to increase his ability to produce. And he is doing so. Are some land owners using Section 1031 tax-deferred exchanges as a means to move some profits from the increase in land values into other real property investments? No question. But the true reason for the hike in land values has a lot more to do with rising commodity prices than it does with a few exchanges.

Ken Tharp

Providing Qualified Intermediary services for Section 1031 tax deferred exchanges all over the United States. Headquartered in Iowa, our services are available in Missouri, Kansas, Nebraska, Colorado, North Dakota, South Dakota, Minnesota, Wisconsin, Illinois, and all other states.

Copyright © 2008 By Ken Tharp, All Rights Reserved. * Midwest Farmland Exchanges: Cause of High Land Values or Merely Effect? * Contact Ken Tharp for information on Section 1031 tax-deferred exchanges anywhere in the United States.