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 "No regrets at all," Fullington said of the purchase of his
neighbor's land, now farmed by a son of one of his partners. "Very
seldom do you get an opportunity to buy something right next door to
you. There's always a little extra value there for you."
In the 1980s, sharp falls in corn and soybean prices hit farm
incomes hard and land prices tumbled, hurting the rural economy in
the world's biggest grains producer. The pain spilled into the
financial sector as defaults on loans pegged to farmland values
rose.
U.S. policymakers and bankers had feared a repeat this year, but
instead, U.S. farmland prices are already up 8 percent as of Aug. 1
according to the U.S. Department of Agriculture (USDA).
They expect values - especially for prime farmland - to hold near
record highs even though corn and soybeans are at four-year lows.
The reason? Farming families like the Fullingtons have money from
recent boom years to invest into assets they think give long-term
value. Levels of debt are also lower than in the 1980s.
And after five years of record grain prices, led by corn on the back
of booming biofuel demand, and export demand led by China, farmers
have enough wealth to weather this fall. All time-high harvests that
triggered the slide also provides a cushion as there are more crops
to sell.
Government crop insurance programs, boosted again in the latest
five-year farm bill signed in February, have also given grain
farmers added protection.
New demand is coming in too. Livestock producers are seeking more
grazing land as they rebuild herds after years of drought and are
benefiting from record cattle prices.
"The agricultural sector has been highly profitable so you still
have a lot of money out there, a lot of wealth," said Nathan
Kauffman of the Kansas City Federal Reserve, who oversees the bank's
quarterly survey of Plains crop land prices, which are up 6 percent
this year.
DODGING THE TSUNAMI
Farmland acts as the main collateral for farm loans and amounted to
$2.45 trillion or 85 percent of farmer assets in 2014, up from 79
percent in 2010, according to the USDA's latest data. In the same
period, land asset values for farmers rose 35 percent, extending a
decade-long climb, interrupted only briefly in 2009 during the
global financial crisis.
"I think the good properties will sell this fall," said Jim Farrell,
head of Farmers National, the largest U.S. farm management company
and top auction house in the country, based in Omaha, Nebraska.
He said spring auctions saw 90 percent of properties sold on the day
of auction and 95 percent in the same week.
"I don't see that deteriorating a lot," Farrell said.
Just two weeks ago, a farm in the country's top crop state of Iowa
fetched $14,100 per acre - just below last year's record when corn
prices were much higher, according to Randy Hertz of Hertz Farm
Management in Nevada, Iowa.
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"That really surprised me how strong that was," Hertz said.
Farmland auctions take place throughout the year but autumn is the
busiest season as crops are harvested and the end of the tax year
looms. Farmers make up the bulk of buyers, both to work the land
themselves and as an investment to be managed or rented out.
An Iowa State University study in January showed farmers made up 80
percent of buyers of farmland in the top corn and soybean growing
state, 18 percent were investors - including farmers buying land to
be managed - and the remaining 2 percent were other buyers such as
churches and non-profit groups. Iowa does not allow big corporations
or partnerships to own land, with most farmland owned by couples or
individuals.
"People talk about institutions investing in farmland but we are
still a small fraction of what is happening in the marketplace,"
said Jeffrey Conrad, head of investment firm AgIS Capital which
advises farmland buyers and hedge funds.
Financial investors have generally been more cautious this year
because of the fall in grain prices and the prospect of higher
interest rates, which would make borrowing to buy farmland more
expensive. But many retain a long-term bullish outlook for U.S.
grain and meat as world demand, led by China, looks set to keep
rising.
"You'll definitely see downward pressure, clearly 5-10 percent you
could see," said Conrad, adding that most investors were waiting on
the sidelines and while there could be some softening he expected no
crash in months ahead. "If you saw any real downward pressure on
values, there's enough capital on the sidelines to support it. They
will come back into the market if the values start to fall."
Fullington said he and his partners were not ignoring lower crop
prices or the outlook for interest rates to tick higher in the next
12 months as the Fed trims its bond buying.
"But that's short term," he said. "In the long-term personally I
think there's no better investment than farm land." (Reporting by
Christine Stebbins; Editing by Jo Winterbottom and Tomasz Janowski)
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