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Farmland should continue to increase in value in the immediate future
Fundamentals still point to strength in farmland values, R.D. Schrader told landowners at Schrader Real Estate and Auction Company's annual Midwest Landowners & Family Farm Owners Conference.
"One of the questions on everybody's mind was whether we'll continue to see increases in the prices of farmland in the Midwest. So when we gathered in Venice, Fla., for our annual conference, we spent some time looking at the variables that correlate to stronger land values, such as interest rates, alternative investments and farm income. From that perspective, farmland remains as attractive as it did two or three years ago," said Schrader.
Land in much of Corn Belt continues to show double-digit increases in value, based on the company's auctions as well as a recent report by the Federal Reserve Bank of Chicago, which determined that for the 12 months ending in November 2012, prices were up 18 percent in Iowa, 15 percent in Illinois, and 11 percent in Indiana.
Prices have been rising even more sharply in the Northern Plains states of Nebraska, Kansas, North Dakota and South Dakota. "After several years of rising prices, buyers are turning their attention to other areas in search of values. USDA reports that for the 12 months ending in August 2012, prices per acre were up 35 percent in Nebraska, 25 percent in Kansas, 29 percent in North Dakota and 24 percent in South Dakota.
"We noted that debt/income and debt/equity ratios are relatively low for farms. Meanwhile, CD rates are between 1 and 1.5 percent, and there aren't many alternatives that offer the steady returns of farmland. What it comes down to is there is room to grow," said Schrader. "Because of farmers' sound balance sheets and strong cash positions, we continue to see cash buyers who can acquire land without the risks of high leverage."
Two-thirds of the land sold in Schrader auctions during 2012 was purchased by farmers. "Farmers continue to emerge as buyers more often than not, and they're the ones who best know and appreciate the value of farmland. However, returns remain attractive from an investor standpoint, and investors continue to find values," said Schrader.