The seminar put on by the FDIC in streaming video webinar format this morning titled Don’t Bet the Farm – Assesing the Boom in Farmland Prices was very interesting with a panel of speakers in various fields such as banking, agricultural professors and economists. The one group that was blatantly not represented was the actual farmer or agricultural producer which was odd. It seemed that a representative from farming should have been there to give input on such an important topic.
The conclusions from most of the speakers were not really anything new or surprising as so much press coverage and media commentary has been put on this subject already.
The major points were:
- Farmland Values have risen quickly but farm income has also increased
- Interests rates are low and debt ratios are low (i.e. farmers are not leveraged as much as in the previous farm/banking busts)
- Demand is strong and will continue especially foreign demand for United States farmland crops (especially corn to China)
- Farmland value increases are not panic buying
- Farmland buyers are nearly 75% existing farm operations that are expanding and are buying with huge amounts of cash and small loans
- Investors represent a small sector of the buyers and most all of them are individual buyers (people buying back home where they grew up, non-operating farm owners that lease out to local farmers)
- Institutional buyers are less than 10% of the buyers of most farmland
- Farmland does NOT correlate with commercial and residential real estate markets.
- Extremely small amount of farmland actually on the market or being sold, farm owners do not typically sell…ever! Those that do sell are usually non-operating owners that are 65+ that inherited the land. There is 60% less land on the market today than ever in last 10 years.
- There are more buyers than sellers in the farmland market due to reluctance of farmland owners to sell for any reason other than consolidation or retirement.
- Almost all farmland buyers are local buyers (probably within the same county)
Some of the panel member were asked to predict what the market would be like in two years. Most waffled but a couple answered straightforward. The investment fund (REIT) Manager, Shonda Warner predicted that farmland prices would be stabilized. An agricultural professor from Purdue suggested that prices will go even higher. So what will happen? Time will only tell.
The panelist slide shows should be on FDIC.gov later today and next week the video file will be posted for viewing. It was an interesting overview especially from the banking prospective.
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