The land market has now officially gone insane.
Cash rents on 2,150 acres of dryland farm ground in Thomas County, Kan., for five-year leases soared to $90-$140/acre last week in an open auction. The average of the bids among the three farmers who won the contracts came to $123/acre, which compares to last year's county average of about $40/acre.
Farmers all over are dumbfounded. According to one realtor in Colby, Kan., people were only expecting the rents at the auction to bid as high as $65-70/acre. But for rents to go twice that high? That takes some pretty fierce bidding. Some of the farmers at the auction said they barely even had time to get their finger in the air before bidding soared past $100/acre.
The auction also drew quite a crowd. The realtor who organized the auction said they normally expect 50 to 100 people at events like this. This auction pulled in 250.
With a crowd like that, it's evident there are more than a few farmers out there with money to burn. Other realtors in the area say the feeling in agriculture is so bullish with so many farmers willing to push rents that high, rents and land values will continue going up at least for the near term.
The consequence, of course, is small or beginning farmers getting edged out of the competition. Only big farmers who have buying power and the ability to spread more risk can afford to handle rents in the nosebleed section.
Can High Rents Work?
But even among bigger and more profitable operations, one is still left wondering: How can even a big farming operation maintain profitability of a five-year lease with rents that are twice to three times the normal rate?
Other costs of production are most certainly going to follow as farmers bid inputs higher in the exhaustive chase for profits. There is already talk going around of how anhydrous ammonia prices could return to $1,000/ton by this fall. With those kinds of prospects, signing a five-year contract on the expectation of today's profitability continuing through the lifetime of that lease is a pretty bullish bet.
And while grain prices may be high now, they won't stay on the bullish trend forever. High prices here in the U.S. also mean high prices everywhere exportable crops are grown, such as Russia and Australia. Farmers there, too, will also be taking the hint and planting fencerow to fencerow.
But as one Thomas County realtor puts it, the weak dollar and current tight world grain supplies have local farmers convinced that prices will stay strong for at least the next 5-6 years.
Those aggressive expectations are causing nothing less than an all-out feeding frenzy in the land market. We'll see soon enough how long the frenzy lasts and who's left standing.