One of the hottest assets — and hottest topics — is farmland. Here’s the price of land in Sioux County, Iowa, as reported annually by Iowa State. In the area, land has sold for several thousand dollars an acre more than the last data point above, and at a recent auction not far away, an auctioneer cajoled the crowd of buyers, reminding them that “it won’t be back on the market for 40 or 50 years.” A newspaper account said simply, “Investors have determined that land is a safe bet.”
I did a cautionary posting last spring and prices have rocketed higher since then. But “it doesn’t pencil,” as they say, unless prices keep going up. Where have we seen that before?
Also above are corn and soybean prices — that’s what’s grown in Sioux County — indexed for easy comparison. Of course, that’s only part of the equation. Crop yields have been getting better and as the acres per farmer has increased dramatically, there have been economies of scale. On the other side, input prices have been rising and those gargantuan tractors and combines aren’t cheap. How all of those factors fit together will determine the value of the land in the long run.
Two broad investment forces have also spurned interest in dirt: Very low interest rates and punk returns elsewhere. We’ll see how long those trends last and what happens to farmland when they reverse.
Iowa is in the Chicago Federal Reserve District. If you are interested in more information on farmland, you should check out its last AgLetter or a special publication, “Rising Farmland Values: Causes and Cautions.” (Chart: Bloomberg terminal.)
If you are involved in making investment decisions, when was the last time you had an independent review of your process? It may be just what you need to see things in a new way.
Frederick Manfred was born just up the road from Sioux County a hundred years ago. He created the term “Siouxland” to describe the region in which most of his works took place. He was a Faulkner of the prairie, a giant of a man in every way, including his 6’9″ frame. The town where our lives intersected is celebrating his centenary with a series of events.
Manfred’s first novel, which was penned under his given name of Feike Feikema, was The Golden Bowl. In contrast to the bounty of the land charted above, it was about the lives of some South Dakota farmers as they tried to hang on during the ravages of the Dust Bowl years. Near the end is this passage:
“In the hidden country of a pilgrim’s heart, rains are falling. The sun shines there, and men go into the fields and work and believe in the work of their hands.”