Will the next farmland auction be higher or lower in price?

frank

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With planters in the field, farm land sales will take a bit of a hiatus and begin again in the fall, but where they will resume may or may not be where they left off. Iowa farmland auctions had set the records in the $15 to $16 thousand range, but Central Illinois auction prices are not far behind. And with such reports, come the persistent questions of how those values can be sustained. Reasonable questions.

At the Farm Foundation?s early April Forum on land values, Purdue economist Brent Gloy reviewed some of the dynamics pushing and pulling on land values and identified both the drivers and the risks in getting into the bidding spirit. While Gloy analyzed cropland values reported by USDA last August, the double digit rises in Cornbelt land values remain in high gear, and many prices of last August have long been exceeded by the latest bidders. Gloy asked nearly 200 prospective farmland owners this spring for their perceptions on value and the price of 80 acres of farmland capable of producing 165 bushel corn without irrigation. They told him the value would range from $1,500 to more than $12,000 per acre. He said 65% of the potential buyers felt the auction price was higher than their perception of value. And 53% of the respondents believe farmland prices are in an inflationary bubble. Even with high prices, 73% of them are interested in buying more land in the next 5 years.

Gloy observed that today?s earnings and interest rates make farmland prices attractive. He adds that the fundamentals driving land values yesterday may not be effective today, and tomorrow?s fundamentals are also not necessarily duplicated from those of today. Today?s drivers include biofuel demand, a strong demand for farm commodities from emerging markets, and a combination of weather and poor yields. Additionally, the low interest rates make farmland earnings a valuable alternative. The demand for grains produced stems from acreage of soybeans destined for China and the corn needs of the ethanol industry. Both of those have more than tripled in the past decade. The export of soybeans to China is only one instance of exports having a positive effect on land values. Gloy and his Purdue colleagues found a strong relationship between farm prices and exports. Over the course of the past two decades, Gloy says it has been difficult to earn positive returns from Indiana farmland, with annual budgets frequently showing a loss. But in the current and past five crop years, five have shown a budgeted profit at levels unseen previously.

Read more at http://www.dairyherd.com/dairy-news...on-be-higher-or-lower-in-price-148106155.html
 
 
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