The rise in Kansas agricultural land prices appears to be accelerating in response to the incredible jump in the price of many agricultural products since mid-2010.
A recent survey by Farmers National Co., a national brokerage for farm and ranch land, showed that non-irrigated crop land in central Kansas averaged $3,000 an acre, up 50 percent since June.
Irrigated farmland in central Kansas was up 15 to 20 percent since June, for an average of $3,500 an acre.
Other Midwestern states saw increases of 10 to 20 percent, according to the company. Farmland on the coasts may actually have fallen in value in recent years because development prospects have dried up.
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The only agricultural land in Kansas seeing a drop is land bought for hunting preserves — a hot commodity until 2008.
Crop and pasture land, like any commercial real estate, attracts more buyers as the income it produces rises, say experts. More buyers plus fewer sellers equals higher prices.
Crop prices have seen an extraordinary run since early July. A bushel of wheat priced about $4 a bushel on July 4 is now more than $8.50. Other crops have experienced similar increases.
As the land generates more income, it puts more cash in the pockets of the most likely buyers, nearby farmers. It also provides an attractive return for investors who then rent it out to farmers.
The result: Auctions are drawing twice the number of bidders as before, said area agents.
Monty Meusch, areas sales manager of Farmers National, said his agents used to have a pretty good feel for what land would sell for at auction but find they are now often underestimating final bids.
"This thing has got pretty wild, with corn at $6 and wheat at $7 and $8, "Meusch said.
What's driving it
The surge in farmland prices is partly the result of normal supply and demand, and partly because of federal government efforts to revive the economy.
The Federal Reserve's printing of more dollars to revive the economy has reduced its value against foreign currencies. As that value has dropped, American exports have become cheaper and easier to sell overseas.
But the situation is complex. Many believe the U.S. actions have exported inflation outside the country, leading to rising prices for food produced elsewhere.
And the low interest rates set by the federal government to encourage borrowing also have an effect. They make it cheap to borrow and reduce the attractiveness of holding the money in alternative investments. This has driven up investor demand, and prices, of crops and the land to grow them.
Farmers, say agents, are comfortable owning land, so buying more is an obvious place to put their newfound surpluses.
It also has attracted those who are seeking higher returns than US. Treasury bonds and less risk than stocks. This includes the local doctor and banker, but it's moved beyond that.
Chris Ostmeyer of Farmers National in Wichita manages farms for out-of-town investors.
"These big investors are really national in scope," he said. "They'll rent it to the farmer and get a good return, better than they can get anywhere else right now."
These investors, whether local or national, are driving prices high enough in some instances that local farmers won't buy.
Duane Hilger, who farms wheat and raises cattle south of Norwich, said he was at a recent auction and was outbid by an investor. He was really interested in the land, he said, but it just got too expensive. Land prices can't be based solely on today's high crop prices, he said.
"You throw a rock up and eventually it will come down," he said.
Headed for a bubble?
Thomas Hoenig, president of the Kansas City Federal Reserve, has warned that farmland prices may be getting above what is warranted by crop prices.
The fear is that another bubble is inflating, that buyers are borrowing to buy that land, bid up prices and increase leverage in a replay of the housing crisis.
The Kansas City Federal Reserve Bank will release a study of the fourth quarter soon that looks more closely at how much farmers have borrowed.
Many are watching the situation closely to see if a bubble is starting to form.
"That's the million dollar question," said Brian Briggeman, an economist for the KC Fed. "It's difficult to identify a bubble."
He said the use of debt appears to be increasing among farmland buyers, but that doesn't necessarily signal trouble.
In Kansas, at least, that doesn't seem to be a problem, yet, said Byron Enix, Wichita-based regional manager for American AgCredit.
"We are not seeing a tremendous increase in leverage in the balance sheet," Enix said. "That is locally. Nationally, we are seeing increased levels on farmers' balance sheets in the corn belt."