HERTZ FARM MANAGEMENT ISSUES COMMENTS ABOUT SURGING FARMLAND PRICES-U.S.A.

June 21, 2011

Source: Hertz Farm Management

The past nine months have seen exceptional strength in the demand for quality farmland.

The bulk of that demand has come from the very strong corn and soybean prices that have prevailed since last fall. In addition, a lack of quality farms available for purchase has also contributed to this strength. The result has been a period of very potent demand for farmland and a rise in values.

We have seen prices increase as much as 20% to more than 30% in some areas. The jump in prices has prompted plenty of questions about whether or not this current strength in demand will last.

What land values will do in the long run is anybody's guess. However, we do see several factors that support favorable demand for land for the next several months.

First among these is currently favorable grain prices and forecasts that suggest these strong prices will continue well into next year.

USDA's World Outlook Board recently released its first assessment of supply and demand for the 2011 crops. It says corn demand is likely to remain strong and supplies, while expected to rise this year with a larger crop, are seen as staying tight.

The USDA economists say they expect 2011-crop corn prices will average between $5.50 per bu. and $6.50 per bushel. That price level would be a record if achieved. USDA now believes 2010-crop corn will average between $5.10 to $5.40 per bu. average on-farm price.

USDA sees similarly strong soybean prices ahead, too. In their first look at 2011-crop soybeans, USDA economists projected an average on-farm price of $12.00 to $14.00 per bushel. That compares to an average on-farm price of $11.40 per bu. expected for the 2010 soybean crop.

On wheat, USDA said it expects the 2011-crop will average between $6.80 and $8.20 per bu., average on-farm all-wheat price. That compares to an average of $5.65 per bu. which is expected for the 2010 crop.

Meanwhile, the middle-class population/income boom in Asia continues. This brings an ever-increasing number of consumers with the ability to pay for protein to the table every day.

It appears China's leaders are committed to seeing this rising middle class grow. With a shrinking land base due to urbanization and environmental issues, this means China, which has about a fourth of the world's population, will increasingly rely on grain and meat imports. That should mean rising demand for the grain and protein that America's heartland grows and produces. This should be supportive of land values, as well.

Interest rates are a wild card. Interest rates are currently at historically low levels. That fact has proven a solid boost to land demand. They should continue to support land demand as long as they remain low.

The question is when will they rise? Again, that is anybody's guess. The Federal Reserve continues to signal that it will keep interest rates low for the near term. It does not give any indication of when it will begin to let rates rise.

That uncertainty makes it somewhat difficult to develop long-term plans. But it also suggests there is time to fine-tune your financial statement or to take out a long-term loan while rates are still low.

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