Harvesting Value In Farmland
Monday, August 27, 2007SUSIE GHARIB: The slowdown in the housing market is reaching into rural America. Developers aren't buying up as much farmland for new housing developments and that's taking some steam out of farmland values. But as Diane Eastabrook reports, rising demand for food and fuel continue to make farmland a hot commodity in real estate.
DIANE EASTABROOK, NIGHTLY BUSINESS REPORT CORRESPONDENT: In Plano, Illinois, 3,500 new homes are sprouting up among soybeans and corn. A few years ago, developer Lakewood homes paid farmers up to $30,000 an acre for this land which is about 50 miles west of Chicago. The company's executive Vice President Christopher Shaxted says that price was a bargain compared to what area farmers are expecting today.
CHRISTOPHER SHAXTED, EXECUTIVE V.P., LAKEWOOD HOMES: We've seen pricing go as high as $75,000 to $80,000 depending on location. But the asking price and what people are buying farmland for these days are too different things.
EASTABROOK: Farmland has been a hot commodity in the real estate market. U.S. cropland values have nearly doubled since the beginning of the decade and are up nearly 13 percent this year compared to last. The recent housing boom has been part of the reason. As demand for new homes increased, developers were forced to find land beyond urban and suburban areas. But Ray Brownfield, a land broker for John Greene Land Company, says the tide is turning. He says the slowdown in housing demand is reducing demand for farmland and taking some of the air out of farm prices.
RAY BROWNFIELD, BROKER, JOHN GREENE LAND COMPANY: What was now $50,000 may now be at $25,000 and it depends on how close into town. If it's already zoned and ready to go, it's obviously at a higher price level.
When it comes to farmland values, it's really a tale of two markets. While prices for farmland near metropolitan areas are coming off of their lofty highs, prices for land in farther flung areas like central Illinois are still climbing. Real estate appraisers say farmland prices in McLean County, Illinois, have increased about 6 percent since spring to nearly $6,000 an acre. They say two things are driving up prices. First, farmers who sold land in northern Illinois for residential development are reinvesting their profits downstate. And second, higher grain prices fueled by the ethanol industry are driving up demand for farmland. Steven Myers, senior vice president of Busey Ag Resources, says the hot commodities market is putting a floor under downstate land values.
STEVEN MYERS, SR. V.P., BUSEY AG RESOURCES: We actually see some cash buyers come back into the market and are buying farmland just for its investment, its stand-alone investments.
EASTABROOK: But rising farmland values are causing problems for some farmers. Carl Neubauer leases about half of the 1,300 acres of land he farms. He says lease rates are climbing with higher farmland prices, making it harder for him to grow his business.
CARL NEUBAUER, FARMER: We from time to time get the opportunity to bid, so to speak, on additional acreage, and in some cases it does go for prices that are higher than we are willing to pay.
EASTABROOK: Experts think, overall, farm land values will continue to improve next year, but perhaps not at the rate they've been experiencing. Diane Eastabrook, NIGHTLY BUSINESS REPORT, McClean County, Illinois.
