Experts weigh in on land investments

By Joseph L. Murphy

You can add a new name to the ledger of Iowa farmland owners. On Friday, Donald Trump spoke to a capacity crowd of 600 farmers and ag-business professionals during the Land Investment Expo in West Des Moines.

  Donald Trump is interviewed by Ken Root during his appearance at the Land Investment Expo in West Des Moines. (Photo: Joseph L. Murphy)

Donald Trump is interviewed by Ken Root during his appearance at the Land Investment Expo in West Des Moines. (Photo: Joseph L. Murphy)

Trump talked politics and investment strategies with the business leaders while hinting at a run for the presidency. In the end, he was given a deed to an acre of Iowa farm ground as a present for his visit to the conference.

“Farmers in some cases are great real-estate people,” Trump said. “Farms have a tremendous, tremendous future but are very much a bull-bust market. I’ve known some farmers that have had tremendous times and some terrible times. I’ve known some farmers that have gone through hell and some of those same farmers have done very well later on. So you have a boom-bust mentality.”

The eighth annual conference also featured several breakout sessions and keynote speakers from around the world talking about subjects ranging from climate risks to African agriculture. The goal of the conference is to connect policy experts, climate specialists, economists, institutional investors with farm producers, land managers and others operating in agriculture.

Land values

Jim Knuth, senior vice president of Farm Credit Services of America (FCSAmerica) spoke during one of the breakout sessions and gave timely information about land values, interest rates and what he thinks will impact Iowa agriculture in 2015.

Using the concept of benchmark farms, FCSAmerica was able to capture data showing trends concerning land values in the state. According to Knuth, the survey is the most comprehensive agriculture real estate database in Iowa and used nearly 3,400 real estate transactions and 64 benchmark farms in the four state region of Iowa, Nebraska, South Dakota and Wyoming to find trends.

The trends showed that a general reduction in cropland value was somewhat offset by gains in pasture values, and the strongest demand is still for quality cropland tracts.

“At the end of the day land prices are reacting to lower grain and commodity prices,” Knuth said. “Iowa benchmark values declined 6.9 percent in 2014, with 6.1 percent going in the last six months of the year.”

Out of 21 benchmark farms in Iowa one increased in value, 15 farms decreased and five remained unchanged. The data also showed that local is the name of the game when it comes to purchasing land.

“Farmers are the largest buyers of Iowa farmland by a wide margin. When you combine that with local investors you get about 90 percent of the market,” he said. “The trend is clear, local capital and local competition is driving this market. Not Wall Street, not east or west coast money.”

There is an expectation that in future years land values will react to lower grain production margins. Knuth said that is a normal expectation in this part of the cycle.

“Purchasing farm ground should be a long-term investment decision, and it should be from a position of financial strength,” he said.

In closing, he told the packed room that uncertainty shouldn’t stop progress.

“The wrong reaction is to freeze. I believe we should be in a time of proactive adjustments as we face uncertainty,” Knuth said. “The ultimate question becomes, ‘How do you position the operation with the benefits that are coming?’”

Originally published for the Iowa Soybean Association. Find more great stories at: www.iasoybeans.com/news