About Coffey County, KS

Summary of recent news regarding agriculture farmland values and investing in agricultural farm land.

Challenges posed by the new wave of farmland investment - Author Klaus Deininger in the Journal of Peasant Studies. The first sentence in the abstract sums it beautifully.... Despite recent headlines about the 'land rush', scant empirical evidence implies that the debate is often theoretical and dominated by preconceived notions.

America's Hottest Investment: Farmland from The Curious Capitalist at Time.com - Reiteration of farmland values going up 20% and interview with a farmland broker that is busy. Crop prices up, Commodities falling. No new information here. Maybe the take away is that by the time everybody is doing it maybe it isn't the hottest thing anymore may heed some warning. Also they make a great observation - it is hard to invest in farmland. Either you are a farmer or have enough cash to buy outright and lease it out.

Colvin & Co. Farmland Forecast - Shiller's Bullish Call is Farmland - Shiller, a Yale economist predicts that farmland will be the best investment over the next years even better than stocks.

Farm Industry News Blog: High prices continue for good Midwest farmland - a brief report on the reecent sales in Iowa farmland with some sales hitting $9000 an acre. Surveys by the Realtors Land Institute of Iowa indicate that the trend is continuing for prices to go even higher and that values will likely remain high.

Western Farm Press: What Lies ahead after historic farmland boom? Shelia Bair, Chariman of the Federal Deposit Insurance Corporaton (FDIC) tackles the question and ultimately the answer is only time will tell. Farmland has been preferred asset class for investors lately but farming is a farmers operation and they have improved their incomes dramatically recently with high grain prices and low debt loads. The summary is that farmland is low risk and long term but they do sound some warning bells especially regarding credit.

Western Farm Press: Agriculture firms perform better than when compared with S&P 500. The economy has suffered including the stock markets but the cropland farming industry has flourished.

International News on Farmland - from Reuters: Uruguay president eyes tax rise for big landowners - President wants more share of the profits from farmland owners.

big picture agriculture blog takes a look at international land investing - The Perils of International Farmland Investing McDonald's summary is that foreign farmland investing is a fad and when the profit is not realized then they will sell returning the land to the locals which ultimately could lead to wars over food.

"Buy Land, They've Stopped Making It" - Mark Twain

If you have been on the fence about purchasing land in Kansas as an investment tool then read on.

We live in an era where the world population is bursting. In many countries the people are concentrated into one geographical space...and land is a prime commodity. In this series of posts we're going to explore all aspects of land investment so that you will have some knowledge, insight & ability to pick potentially winning land investments.

You may not know much about land investing - in fact you may not even be aware that it's possible to purchase actual land that has an excellent prospect of being developed but it is entirely possible even in Kansas.

Remember that investment is not an exact science. On many occasions it's the overlooked land investments that the "average investor" doesn't know about that give the most sensational returns.

If you live in the United States then chances are that you will have seen a reasonable amount of land in your area being developed into residential estates, shops, malls, big box stores (like Walmart) and other types of development including apartments and houses. It's no longer true that the individual investor is not able to participate in the sometimes staggering profits that are to be had by purchasing land to be sold for development.

Land investing is a strategy where the investor buys carefully researched undeveloped land that has an excellent chance of being purchased for the purposes of building houses or other types of commercial property.

So...WHY INVEST IN LAND?

There are several benefits to investing in land....

• Land worldwide on average has appreciated in value by over 900% over the past 20 years.
  
• This means that land as an investment has given a higher return to investors than even traditional real estate (which has returned 300% over the same period according to research). Returns from land investments have also beaten stock market gains during the same period.
  
• Land as an investment is only going to become more valuable over the next decade and beyond. In many developing countries there is a severe housing shortage and land that can be developed for this purpose can expect to see some very handsome gains.
  
• Unlike real-estate, land investment is not a hands-on investment. Real estate investment can be highly rewarding of course, but there can be several time consuming administrative responsibilities such as ensuring that the property is populated with tenants, finding competitive mortgages, keeping abreast with legal commitments, checking the property and much more. Land investment by contrast is far less involved and a rather off-hands investment.
  
• It's possible to invest in land with far less money than is required for real estate development. You can buy smaller plots of land (sometimes as part of a larger consortium) from as little as $5,000 in some cases. Sometimes this is technique known as "Land Banking" and we'll discuss it further in another post.
  
• Usually, there are no "ongoing" costs associated with land purchases other than taxes. With real estate, it's obviously important to set funds aside for such possibilities as repairs & maintenance and vacanies. With land investment, the only costs are the purchase of land and the taxes. Very seldom is there any appreciable mainteance costs unless the property is in a pre-development state and needs mowing. This can be done by a contractor and on large tracts it can usually just be done a few times to keep it at an acceptable growth level. The cost of this is usually minimial compared to the holding costs of other types of buildings like apartments or commerical business buildings.
• Employing a good strategy to identify a potentially winning investment is to be aware of economic & political developments and invest in places that are likely to benefit greatly from these developments. Carefully researched land investment in places such as Kansas can provide you with a long term portfolio of appreciating land.

The Farmland Price index is a monthly index value done by Creighton University and it is number from 0 to 100 and is based up surveys of rural banks in agriculture areas including Kansas. The states in the Farmland Price Index include Colorado, Illinois, Iowa, Kansas, Minnesota, Nebraska, North Dakota, South Dakota and Wyoming.

The overall reading is now 77.6 for April which is up from 75 in March. A number greater than 50 is indication that land prices are going up. Kansas is pretty close to the overall reading but lower than other states in the survey. Kansas is higher than Minnesota and Missouri but all the other states have higher readings with North Dakota the highest at 86.7 where the market for land is strong.

Recent Farmland Price Index for Kansas values

Dec 2010 78.8

Jan 2011 77.3

Feb 2011 78.2

Mar 2011 74.4

Apr 2011 76.9

The Confidence Index, which tracks bankers' expectations for the rural economy six months out, fell for the third straight monty to 61 in March, from 65.2 in March. Federal Reserve Bank President Thomas Hoenig and other bankers predict that interest rates will rise.

The Kansas Department of Agriculture Statistics released the Agricultural Prices and Crop Index.

KANSAS: The All Crops Index in April is up 14 points from March and up 126 points from 2010.

Wheat prices in mid-April, at $7.80 per bushel, are down 4 cents from March but $3.67 above last April.

Corn prices in mid-April, at $6.95 per bushel, are up 87 cents from March and $3.69 above last April.

Farmers received an average of $11.70 per cwt. for grain sorghum in mid-April, up 90 cents from March and $6.42 above last April.

Soybean prices, at $12.80 per bushel in mid-April, are down 10 cents from March but $3.41 above last April.

All hay prices averaged $105 per ton in mid-April, down $2 from March but $8 higher than last year. Alfalfa hay averaged $115 per ton, unchanged from March but $10 higher than last April. Other hay, at $70 per ton, is down $5 from March but $5 above last April.

Will the Great Land Bubble ever come? Does it apply to all land? Or just the skyrocketing values on farmland? The headlines ask so many questions yet where are the answers?

Looking though some old articles from newspapers, reports, newsletters and various sources that report on land values particularly farmland values and what immediately struck out like lightning from the pages was the continued talk about a bubble or crash in land values for YEARS not just in the last year. This is not a recent phenomenon because some of these articles were from 2005 and 2007 and even as early as 2003.

So is there a land bubble? Good question! Everyone talks about it including the FDIC but nobody will definitely say if we are in a bubble. The news cycle has published a flurry of land bubble headlines every week for the last six months. A quick review of past articles for the last five years shows a similar cycle as well. Most of the land bubble talk starting showing up as the residential markets headed into the spiral downward. Recreational land and residential building lots as a rule followed the residential markets for negative value losses. Rural residential building parcels also seemed to have tanked parallel with the housing and commercial markets. However, farmland appears to done exactly the opposite of what most forecasted.

In 2007 over half of rural bankers thought a land price bubble was eminent. In 2008 an article reported that at the conclusion of a Midwest farmland auction two bidders asked each other what did we just do? Implying that they both thought the price went too high. However, in the same area two years later with land prices up another 20% the winning bidder is probably patting himself on the back now for buying at that 2008 price. While there are always exceptions on the local markets the national averages have continued to show increases in farmland from 5 – 20% in value.

An analysis of Kansas land values since 1991 showed only one year when values actually decreased. Most years were between 3-7% value increases with recent years showing as much as 11-15% increases in value from year to year. If you take the history back even further it shows that between 1960 and 1978 that farmland prices in Kansas doubled twice. Decreases in value show up in the 1980s which is expected but no apparent large scale crashes have appeared in farmland values for nearly fifty years. Kansas and other Central Plains states tend to be good benchmarks for national trends because of historically stable markets. Literally sitting right in the middle of the country these areas don’t fluctuate like a roller coaster in economy or values like some of the coastal states. It takes a while to catch up with trends in the heartland and if it drops sharply then the effects are not nearly as drastic.

Jason Henderson, a Kansas City Federal district economist recently spoke at the North American Agricultural Journalists association meeting and spoke of land’s value-to-rent ratio. He indicates that rents are not keeping pace with land values and that is something that happened in the 1980s farmland value crash. Henderson also pointed out that if cheap credit ends then land values will return to normal levels.

Thomas Hoening has been reporting on the financial aspects of increasing land values for years. He has been the lone wolf when it comes to interest rates and he has opposed stimulus spending such as quantitative easing. He supports raising the interest rate as the economy improves so as to curtail inflation and bubbles. The Fed seemed enthusiastic to announce his mandatory retirement as Federal District presidents have to retire at age 65 so it will be interesting to see who will sound the alarms when Hoening is not around anymore.

Credit may not seem to be a problem right now but the potential is down the road. However as long as farm operators continue to have historically low debt loads it seems unlikely that interest rate increases would cause grand scale volatility in farmland values. Farm income rose almost 30% in 2010 after good harvests along with high commodity markets. One scenario that is quoted over and over again is that if land values fall drastically that much of that loss will show up on paper. Farmers potentially might lose a significant amount of net worth due to the land values as an asset. However, farm incomes are predicted to steadily continue upward and that coupled with low interest rates and low debts make most economists say it is reason enough not to compare to the 1980s downturns in land values. Additionally, land values are in line with the returns in the agriculture industry say most investment managers.

So why no bubble?

• Farmland has less risk than say the stock market – even stock brokers admit that.
• Farmland is not as leveraged as other types of properties so value loss can be absorbed easier.
• Farmland does not follow the stock market or other real estate markets – and that’s good!

So why all the Hubbub?

• Warning signs are valid points for any market especially the effect of increased interest rates.
• Input costs for agricultural can be harshly affected by rising gas prices.
• Speculation in the commodities markets ultimately hits home on land value.

So…what do you think? Bubble or Hubbub?

Originally posted at LandThink