Farmland values rise as crop prices soar and demand for home sites climbs

Kansas City Star

February 22, 2008

Real estate signs linger for months in the yards of unsold houses in Kansas City. Prices are cut in a frenzied competition for buyers.

Imagine, then, a place where real estate prices are up robustly and there are plenty of eager buyers.

Look no further than the wide open spaces of rural Kansas and Missouri.

The price of agricultural land was up more than 20 percent in Kansas and the western third of Missouri in the last quarter of 2007, compared with a year earlier, according to a Federal Reserve survey. By contrast, real estate values in cities have generally fallen or remained flat.

'They are in opposite directions on the chart,' said Larry Kueser, a Miami County real estate agent who specializes in rural property. 'It's a very interesting dynamic.'

Although rural land has been attractive for some time as an investment or for recreational use, the recent surge is due to booming crop prices driven largely by the demand for biofuels, experts said.

'In 2007 and probably continuing into 2008, agriculture is back in the driver's seat,' said Rodney Jones, a farm management economist at Kansas State University.

Since 2001, land prices have more than doubled in western Missouri and nearly doubled in Kansas, according to the Federal Reserve. The average value of an acre of cropland was $2,325 in western Missouri and $1,178 in Kansas, the survey showed.

Kansas values are higher in the eastern part of the state, especially in the Kansas City area. Rural land is $15,000 to $50,000 an acre in southern Johnson County and $10,000 to $12,000 in northern Miami County, Kueser said.

When 80 acres of pasture were put up for sale last month in southern Miami County, Kueser said, eight offers were made in two hours. The land sold for just under $200,000.

Farther away, better times on the farm are breathing life into some small-town businesses.

'There is more money to spend,' said Ron Plain, an agricultural economist at the University of Missouri-Columbia. 'The Ford dealer or Chevy dealer will benefit. The farmer may remodel his house, put in new furniture. The kids may get a new rifle and a four-wheeler. When the farmers have more money, everyone benefits.'

In Beloit in north-central Kansas, factories that make tillage equipment are so busy they can't find enough employees, said Murray McGee of the Mitchell County Community Development office. A farm vehicle tire supplier is in the same situation, he said.

Ron Kuglin, a rancher and farmer in the Holton area, north of Topeka, said he bought two new pieces of farm equipment recently, as he came off a good financial year.

But, as always, the good news is combined with caution and concern about the future.

Kuglin said the income boost for farmers was partly offset by higher costs.

Fertilizer made from price-sensitive petroleum products has doubled in price in the past three years and costs $50 to $60 an acre to apply, he said.

Gary Zibell, a Holton area farmer and rancher, said farmers were hardly splurging in the wake of rising prices for commodities and land because costs are also up.

'You have way more money than before, but you're not getting to keep it,' Zibell said.

Rising values increase a farmer's net worth but don't put more money in his pocket unless the land is sold, Kuglin said.

Nonetheless, Kuglin and Zibell said they were happy with the farm economy of late. They said the demand for ethanol and other biofuels was a key factor in the upswing.

'It's helped the grain prices tremendously,' Kuglin said.

Jones, the K-State economist, said corn and soybean prices had doubled and wheat prices tripled in the past two years. There is also an improved foreign market created by the weak dollar and growing demand for U.S. farm products.

Pasture land prices are also up because the high price of feed and grain makes grazing a cheaper alternative to feedlots, Jones said.

But while the flourishing farm economy may be good for rural businesses, it is not necessarily a lifeline for small towns hurt by population declines. Improved prices for commodities will probably accelerate the trend of farm consolidation, larger farms and fewer people living on them, Jones said.

What's more, farmers recall the early 1980s, when the economy soured, foreign markets dried up and interest rates soared. The prices of land and commodities fell.

Plain, from MU, said he was concerned that history could repeat itself, even though the market today for corn and other products used in biofuels did not exist in the 1980s. Land prices could eclipse their future values if the farm economy suffers, he said.

'Land prices are not set by the most conservative farmers

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