Farmland values continued to rise last year and are once again reaching all time record levels. How long will it last? Nobody has a crystal ball but there are some factors to consider.
The current top capital gains rate of 15% on most assets is the lowest it’s been for years. The Obama administration has talked about raising it to 20%, with another possible 4.5% surtax for the high tax bracket people. Couple this with a state capital gains rate of 8% and you could really see Uncle Sam take a bite out of your money!
The S&P 500 peaked at 1,565 points on October 9, 2007. Then the bear market hit and pulled it down to 676 on March 9, 2009. As of January 2010, the market recovered again to 1,138. A nice bounce back, but how long will it take to get back to even? History shows that it can take up to 5 years to make up for damage caused by downturns in the market. Where will investors park their money?
Farm net income has jumped from $48 billion to an average $64.5 billion in the last decade. While 2010 projects to be slightly below the average, it still projects to be the fifth highest amount of income produced in farming. Livestock economic conditions are expected to improve while crop producers look to stabilize.
Corn yields in Minnesota have nearly doubled since 1980 - from 100 bushels/acre to almost 170 bushels/acre. The ethanol industry has been a big part of this movement, and will look to continue by having 15% ethanol blended into regular gasoline. The country will need to produce more corn on the same (or less) amount of land.
As the value of farmland has increased, rental rates have soared. We have seen anywhere from 10-70% increases in land rental rates from 2004-2009. The law of supply and demand, commodity price and yield, farm size increases, machinery technology, and chemical application are the biggest factors.
There are many other factors that have contributed to farm land increases. For more information, go to my website at www.farmlandman.com, email me at firstname.lastname@example.org or call me at 320-894-7528. We are land specialists!
The Farmland Man