On November 15th, the Federal Reserve Bank of Chicago hosted a conference entitled “Rising Farmland Values – Causes and Cautions”. A series of prominent economists, professors, lenders, and other industry professionals were invited to offer their view of the current state of the farmland marketplace in the Midwest. Many of the presentations can be found and downloaded here (Chicago Fed Ag Conference) by clicking on the “Agenda” tab.
I’m the first to admit that there are several different methods for discussing and analyzing the land value issue. Some experts have taken reams of historical data and neatly summarized the whole story in a series of charts and graphs. Others have taken the more simplified approach of simply talking with land buyers and land sellers to see what’s been motivating their behavior. When looking at the issue from this angle, it appears the biggest driver in ag land values has been the increase in farm income. No doubt there are other forces at play, e.g., the risk/return of alternative investments, etc., but it still boils down to the fact that farmers have been making more money and they’ve invested a large part of their profits into new land purchases (or higher rents, thus stabilizing the returns to investors).
The future direction of land values is uncertain (though I personally feel that the rapid increase we’ve seen the past 5 years is going to level off) and I encourage all farmers and investors to continue reading and studying the issue closely. But when you get to the point when your head is ready to explode from information overload, just remember the basics – if farmers are making money, land values will remain steady and/or move higher. When they aren’t, especially for an extended period of time, then it’s time to get worried.
