Even with farmland selling at record highs throughout much of the nation, land remains a sound value and will likely continue to go up in price over the long term, farmland expert Murray Wise told a conference sponsored by the Federal Reserve Bank of Chicago Tuesday.
In his keynote presentation, Wise pointed to estimates that worldwide stocks of corn are at their lowest level in 39 years, even as worldwide demand continues to grow. Meanwhile, farmland in the United States has returned an average of 11.2% annually since 1995, with volatility rivaling that of corporate bonds and treasury bills.
Over the last seven years, the total return on farmland as measured by the NCRIEF Farmland Index has been 16.44% -- half coming from appreciation and half from farm income.
The audience of approximately 100 included academics, pension fund managers, farm managers, bankers, farmers and Federal Reserve officials, among others.
While remaining bullish on farmland, however, Wise noted that farmland investors should expect some volatility along the way in both land and commodity prices. "Nothing goes straight up forever," he said. However, even a "monster crop" in 2013 would be unlikely to significantly hurt farmland prices, he added.
Even after recent dramatic price increases, there are few signs of excess in the market for farmland. Three-fourths of the farmland in Iowa is debt free, and two-thirds of the farmland selling in Illinois is still going to farmers. For every $100 in assets, farmers now have only $9 in debt, compared to $22 in the 1980s, he noted.
Demand for corn, soybeans and other U.S. crops continues to increase, meanwhile, with world inventories at historically low levels, Wise said.
Wise is CEO of Murray Wise Associates LLC, headquartered in Champaign, Ill.