As we’ve discussed on this blog numerous times, farmland values are a function of several different factors – interest rates, commodity prices, returns on alternative investments, government policies, etc. Of all these variables, typically a large movement in grain prices will have the most immediate impact on land prices. Landowners (both farmers and investors) can quickly determine that a $1.50 jump in corn prices (like we’ve seen in 2010) will lead to higher than anticipated income, which can be used to fund a farm purchase. Conversely, a drop in corn prices (like we saw in the fall of 2008), make large capital purchases nearly impossible.
Farm Journal magazine recently held a marketing rally where they invited several top commodity analysts to provide their outlook for 2011. Their remarks (Even the Bears Are Bullish) have been summarized on the AgWeb.com website and as the title suggests, there is plenty of optimism looking forward into next year. Numerous opportunities to lock in profitable grain prices are likely, though volatility will likely be high.
Assuming the commodity professionals are correct, land prices next year should remain strong. A good job marketing grain (assuming normal yields) will mean that farmers should again have enough excess income to purchase land if they so desire. Fortunately, this demand will be driven by excess profits and not just mere speculation. And as long as there is enough cash flow to make the land payment, then a farm purchase will remain an excellent long term investment.
