US FARMLAND PROVES FERTILE FOR INVESTORS:
To snobs in New York and Los Angeles, the rural US midsection is "flyover country." To some large investors, however, it is the next big thing.
Land prices in fertile heartland states have been climbing at a stunning pace as record or near-record prices for corn, soyabeans and wheat translate into more profit per acre. Farmers, flush with cash, are bidding loudest at frenzied auctions, but institutional investors from pension funds to wealthy foreigners are increasingly part of the scene.
"The land market is so tight that the difficulty right now is just finding properties for the large number of buyers out there," says Jeff Waddell, president of Martin, Goodrich and Waddell, a farm manager and land broker outside Chicago. "Those buyers are everything from farmers in Illinois to investors from Argentina."
US nominal farmland values have roughly doubled since 2000 and risen 58 per cent after inflation, the Federal Deposit Insurance Corp says. In some fertile areas, such as Iowa and Illinois, land prices have topped $10,000 an acre.
More than 50 investment funds have been formed to buy crop land in areas from Brazil to eastern Europe, according to a report for the Organisation for Economic Co-operation and Development by HighQuest Partners, a consultant. The US, with world-leading exports of corn, soyabeans, wheat and cotton and strong property rights, is drawing a lot of interest.
The pitch: land is a hedge against inflation, a bet on tightening commodity supplies and an asset that does not move in sync with other markets.
Rex Schrader is secretary-treasurer at Schrader Real Estate and Auction, an Indiana company that sells farmland in 40 states. In the fourth quarter of 2010 he says prime Midwest land prices rose 15-20 per cent. In the first three months of 2011 they rose another 15-20 per cent.
"We are setting new highs every time we have an auction," says Mr Schrader, who has been in the auction business since the age of 13. "The majority of buyers are farmers, but we have seen an increase in the last six months of investors."
Farmland investors include TIAA-CREF, an asset manager that has invested more than $2bn in farmland globally; Hancock Agricultural Investment Group, with $1.5bn; and UBS Agrivest, an affiliate of the Swiss bank with about $550m in assets. Their clients include pension funds and endowments.
The appearance of investors who have never driven a tractor has contributed to worries that the boom could end as painfully as a previous one in the 1970s, which left a foreclosure wave in its wake after interest rates rose. The Federal Deposit Insurance Corporation, a government agency which regulates US banks, last month held a symposium to examine whether farmland was the next housing or dotcom bubble.
"In some areas the prices that they're paying are historically quite high...So there are some places where we will not buy; for example the corn belt," says Jim McCandless, head of global real estate farmland at UBS Global Asset Management.
But many analysts see higher crop prices continuing as developing countries such as China consume more meat and biofuels production grows. In the coming decade US farmers will plant record acres of soyabeans and the largest amount of corn since the second world war, according to the US Department of Agriculture.
In some places investors cannot buy land because it is illegal. Several states, including Iowa, Kansas and Minnesota, have for years prohibited outside corporations from buying farmland in laws that bear comparison to proposed curbs on farmland ownership in Brazil, which has vast tracts of uncultivated land.
US farmland prices are soaring even as the domestic housing market is in the doldrums. The contrast is apparent in DeKalb county, Illinois, a corn-growing powerhouse 60 miles from Chicago.
At the height of the housing boom in 2006, builders were paying farmers $30,000-$50,000 an acre, says Mr Waddell. With these buyers having all but disappeared, farm income and rents are driving prices again.
The same farmland is now $10,000 per acre, in line with values elsewhere in Illinois. Some farmers in the region who sold farmland to developers at the peak are now buying the land back again. "DeKalb is further away from Chicago than it was four years ago," Mr Waddell says.
Read more at:
http://www.ft.com/cms/s/0/cc3ad226-6527-11e0-b150-00144feab49a.html#ixzz1JQy1oATp
