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Farmland sales decline despite higher prices

Farmland sales decline despite higher prices

• Demand for U.S. farmland in 2010 jumped to a five-year high, but the supply of available farmland slipped to historically-low levels.

Farm managers and appraisers reportedly have noticed two distinct trends in recent months in the farmland market.

First is the well-publicized rise in farmland prices that has been fueled in part by historically-high commodity prices and strong interest from investors.

Even while some residential and commercial real estate values have been falling, that has not been the case for farm real estate, said Mike Boehlje, Purdue University ag economist. Instead, weve seen some high prices for farmland in recent months, even exceeding $10,000 an acre in some extreme cases.

The higher prices, however, have not spurred a rush of farmland sales but instead may be a reflection of the second trend, which reportedly is a tight supply of farmland on the market.

Demand for U.S. farmland in 2010 jumped to a five-year high but the supply of available farmland slipped to historically-low levels, according to the Farmers National Company.

Tom Hertz, of Hertz Farm Management, reported the pace of farmland sales in the past 18 months has declined by about one-third. Hertz was a featured speaker during the Farm Profitability 2011 conference in Champaign sponsored by the Illinois Corn Growers and Soybean Associations.

Land sales have been down dramatically, he said. Everybody is holding on as prices go up.

The strong farmland market, which has put pressure on cash rental rates, could lose momentum if crop prices decline, interest rates rise, or if there are changes to the farm program.

Hertz estimated the average price of farmland could decline by $400 to $500 per acre if the federal government ceased direct payments to farmers/landowners.

Farmland investors have been attracted to the market due in part to higher prices/returns and as a hedge against inflation, but overall 85 percent of buyers last year still were farm operators, according to Farmers National Company.

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