Are Farm Land Values in a Bubble?

Are Farm Land Values in a Bubble?
By Mark A. Newman

Farm land in Arizona recently sold for $10,500 near Buckeye, AZ.  What are the buyers going to do with that land?  They intend to grow alfalfa.  Land near Fresno, CA recently has sold for up to $27,000 per acre.  The intended use?  Raisins, though no vines are planted at this time and harvest will be three years away. 

What does this mean?  Is Iowa land overpriced?  One might argue that the alfalfa, being near Phoenix, is worth more because of the population density near the farm.  Likewise, with the grape ground in the San Joaquin Valley.  

However, today, the Iowa corn is now grown near its destination point -- ethanol plants and mega hog and chicken facilities.

This wasn't the case in the early 80's, when much of the corn was shipped down the Mississippi and to points far from Iowa.  Even today, corn and beans are priced as if they were intended for delivery to Chicago.  (Local elevator prices are lower than the CBOT price by a factor called "basis").  Chicago is no longer the destination for a kernel of Iowa Corn.  

Much of Iowa's corn is exported, however, the amounts which are consumed without ever being loaded on a hopper car are staggering. 

According to the USDA, cropland in New Jersey now costs over $12,000 per acre.  This is down 3.8% over last year.  California irrigated cropland hit $9,230, up 1.1%.  the same report set Iowa cropland at $5,700, up 23.9%, while Illinois land is $5,800, up only 18.4%.

What does this mean?  it could simply signal a 'levelling' of land values across the nation.  For instance, Pennsylvania cropland was reported at $5,500, very close to Iowa's reported $5,700. 

The difference is this:  Pennsylvania's land value went DOWN 1.8% while Iowa went UP 23.9%.  This may simply signify a levelling up of Iowa land with the land values of other food producing areas which are nearer to metropolitan areas.

Some have argued that the areas which I noted have pressure from developers.  Uh-huh.  I guess I missed all of those new developments being built outside of Pittsburgh!  To some degree, this may be the case, but the real value of Iowa farmland may have simply been underpriced in the recent past.  World food demand -- not housing -- is driving the economic engine, now!