Keeping on this morning's agriculture focus, as I said a few years ago, with all the mega trends happening in the world, if I could only have one investment over the next 40 years it would be arable farmland. [Jun 20, 2008: World Population to Hit 7 Billion by 2012] [Jun 18, 2008: The Ultimate Shortage ---> Water] [Mar 24, 2008: WSJ - New Limits to Growth Revive Malthusian Fears]
The WSJ is reporting an astounding appreciation in values of farmland in the Midwest in the fourth quarter alone - between 12.9 and 14.8%. I can't see this pace as being sustainable but impressive none the less. Nebraska, the Dakotas, et al continue to be the nation's leaders in low unemployment, and are our version of Australia. [Nov 15, 2010: Farm Economy Headed for Record] With massive subsidies to boot. [Mar 27, 2008: WSJ - Farm Lobby Beats Back Assault on Subsidies] Ethanol anyone?
- Farmland values in much of the Midwest are climbing at their fastest rates since the 2008 boom, the Federal Reserve Bank of Kansas City said Tuesday. Fueled by rising crop prices, the value of irrigated and nonirrigated cropland across the region known as the 10th District jumped 14.8% and 12.9%, respectively, in the fourth quarter, compared with a year earlier.
- The bank's quarterly survey of the region, which covers western Missouri, Nebraska, Kansas, Oklahoma, Wyoming, Colorado and northern New Mexico, found that farmland prices rose for the fifth consecutive quarter since a drop in the third quarter of 2009, when the livestock sector was contracting amid the recession.
- The Federal Reserve Banks in Chicago and Minneapolis have yet to issue their quarterly surveys, but their reports are also expected to show that the farm belt is continuing to rebound from the recession more quickly than the general economy, which has been hobbled by high unemployment rates and weak home values.
- Farmland prices in the 10th District are generating their biggest gains since the third quarter of 2008, when prices of irrigated farmland jumped 23.4% and prices of nonirrigated farmland rose 21.2%.
- Still, it's not clear how long farmland prices can continue to climb so sharply. The Federal Deposit Insurance Corp. has already said it's watching for whether an asset bubble is building. One red flag in Tuesday's report is that cash rental rates for cropland across the 10th District rose only about 6% in the fourth quarter, far too little to justify such a big increase in land prices.
- Farmland prices are heavily influenced by crop prices, which were climbing until the financial crisis and recession popped the commodity-price bubble in late 2008. Led by wheat, U.S. crop prices resumed their upward climb in June 2010 amid harvest problems in places such as Russia, and then the U.S. corn belt, as demand was recovering in the world's emerging economies.
- The prices of corn and wheat grown in the Midwest are about double what they were a year ago, while cotton prices are up 155%. Soybean prices have climbed 50%. Those high commodity prices are giving farmers more money to spend on land, as well as attracting the interest of outside investors looking for an inflation hedge at a time when the cost of borrowing money for buying real estate is low.
- The U.S. Agriculture Department said Monday that it expects net farm income, a widely followed barometer of the U.S. agriculture sector's profitability, to climb 19.8% this year to $94.7 billion, which would be the second-highest inflation-adjusted figure for net farm income in 35 years.