CHICAGO -- David Fullington paid a "ridiculous" price of $13,600 an acre for a 200-acre farm in Illinois within the past year and says he and his partners would probably bid again for prime land that is in tight supply, despite tumbling grain prices.
"No regrets at all," Fullington says of the purchase of his neighbor's land, now farmed by a son of one of his partners. "Very seldom do you get an opportunity to buy something right next door to you. There's always a little extra value there for you."
In the 1980s, sharp falls in corn and soybean prices hit farm incomes hard, and land prices tumbled, hurting the rural economy in the world's biggest grains producer. The pain spilled into the financial sector as defaults on loans pegged to farmland values rose.
U.S. policymakers and bankers had feared a repeat this year, but instead, U.S. farmland prices are already up 8 percent as of Aug. 1, according to the U.S. Department of Agriculture.
They expect values -- especially for prime farmland -- to hold near record highs even though corn and soybeans are at four-year lows.
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The reason? Farming families like the Fullingtons have money from recent boom years to invest into assets they think give long-term value. Levels of debt are also lower than in the 1980s.
And after five years of record grain prices, led by corn on the back of booming biofuel demand, and export demand led by China, farmers have enough wealth to weather this fall. All-time-high harvests that triggered the slide also provide a cushion, as there are more crops to sell.
Government crop insurance programs, boosted again in the latest five-year farm bill signed in February, have also given grain farmers added protection.
New demand is coming in, too. Livestock producers are seeking more grazing land as they rebuild herds after years of drought and are benefiting from record cattle prices.
"The agricultural sector has been highly profitable, so you still have a lot of money out there, a lot of wealth," says Nathan Kauffman of the Kansas City Federal Reserve, who oversees the bank's quarterly survey of Plains cropland prices, which are up 6 percent this year.
Dodging the tsunami
Farmland acts as the main collateral for farm loans and amounted to $2.45 trillion, or 85 percent of farmer assets, in 2014, up from 79 percent in 2010, according to USDA's latest data. In the same period, land asset values for farmers rose 35 percent, extending a decade-long climb, interrupted only briefly in 2009 during the global financial crisis.
"I think the good properties will sell this fall," says Jim Farrell, head of Farmers National, the largest U.S. farm management company and top auction house in the country, based in Omaha, Neb.
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He says spring auctions saw 90 percent of properties sold on the day of auction and 95 percent in the same week.
"I don't see that deteriorating a lot," Farrell says.
Just two weeks ago, a farm in Iowa fetched $14,100 per acre -- just below last year's record when corn prices were much higher, according to Randy Hertz of Hertz Farm Management in Nevada, Iowa.
"That really surprised me, how strong that was," Hertz says.
Farmland auctions take place throughout the year but autumn is the busiest season, as crops are harvested and the end of the tax year looms.
Farmers make up the bulk of buyers, both to work the land themselves and as an investment to be managed or rented out.
An Iowa State University study in January showed farmers made up 80 percent of buyers of farmland in the top corn and soybean growing state, 18 percent were investors -- including farmers buying land to be managed -- and the remaining 2 percent were other buyers such as churches and nonprofit groups. Iowa does not allow big corporations or partnerships to own land, with most farmland owned by couples or individuals.
"People talk about institutions investing in farmland, but we are still a small fraction of what is happening in the marketplace," says Jeffrey Conrad, head of investment firm AgIS Capital, which advises farmland buyers and hedge funds.
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"You'll definitely see downward pressure, clearly 5 to 10 percent you could see," Conrad says, adding that most investors were waiting on the sidelines, and while there could be some softening, he expects no crash in months ahead. "If you saw any real downward pressure on values, there's enough capital on the sidelines to support it. They will come back into the market if the values start to fall."
Fullington says he and his partners were not ignoring lower crop prices or the outlook for interest rates to tick higher in the next 12 months as the Fed trims its bond buying.
"But that's short term," he says. "In the long-term, personally, I think there's no better investment than farmland."
