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FARMLAND VALUES CONTINUE THEIR INCREASE
BrownfieldAgNews reports:

Real estate values in some formerly red-hot U.S. markets have fallen as the sub-prime lending crisis has worsened. But don't expect those problems to spillover into farmland values, which have risen sharply across much of the Midwest since October of 2006.

Jim Farrell is President and CEO of Omaha-based Farmers National Company, which describes itself as the nation's largest farm management and farm real estate firm. He told Brownfield that lending on farmland hasn't been backed by risky loans, as has more often been the case in the larger housing market. And according to Farrell, a key factor behind higher farmland values is that there are more people who want to buy farmland than there is land for sale.

"The real estate market is a demand market and we have more demand than we have willing to sell today," Farrell said.

And that demand isn't driven by speculators. Farrell said the vast majority of those buying farmland, 65 to 75%, are farmers looking to expand. And the reasons for that demand, Farrell explained, are simple: high commodity prices driven by increased global demand for feed grains from developing nations and from the growing biofuels industry.

"You couple those two things together, the long-term outlook or long-term prognosis for agriculture is extremely bullish," noted Farrell.

Farrell said that's why the long-term outlook for farmland values is equally bullish, especially given the current favorable treatment for capital gains from real estate. But he pointed out a new administration could bring new tax laws. And Farrell suggested that prospect may already be influencing decisions to sell farmland.

"With the potential change in the White House, I might want to sell that farm today and pay my tax today," mused Farrell, "as opposed to wait and see what happens in the future and just take advantage of this market."

Indeed, Farrell said the influence of potential tax policy changes are the single factor he and others at Farmers National are focused on as a potential fulcrum that could change the current demand-driven market for farmland. As for whether farmland values have risen too far too fast in the past year or so, Farrell argued that farmland may have been undervalued to start with, just as corn, soybeans and wheat may have been chronically undervalued before their prices increased sharply.

And interestingly, Farrell said the slowdown in the general U.S. housing market came as no surprise to him. He said as far back as 2005, Farmers National had noted a decrease in the number of 1031 exchanges of urban real estate for farmland.

"So what was going on was the housing market was slowing down in and around the major cities and the developers were not buying land as quickly as they had been," said Farrell. "And that was what was providing a lot of the 1031 money - developers buying land on the fringe of city, so we saw that change coming early on."


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