A Booming Prairie Land Market

Want to invest in real estate? What about a nice piece of prairie farm land? Prices are up over 35% in Idaho. Don't live in the US? No problem. You could have had a 20 percent return if you bought land two years ago in Saskatchewan.

Why the boom in farmland? Well, one reason is corn. The lowly crop has suddenly got the international stage, according to an article in Toronto's Financial Post. Corn is seeing 10 year highs in price, in part because of its role in the production of ethanol. And where does the US grow the most corn? Idaho is one of the leaders.

President Bush prodded the price of corn even higher just last month when he pushed for 5 times as much ethanol use by 2017 in order to protect the environment and reduce the US dependency on foreign oil. If the US actually meets this target, it would see the country needing to produce another 12.5 billion bushels of corn to meet demand for fuel and still sell corn for other purposes. At the moment, so much corn is being moved into ethanol production that cattle feed is now using more wheat and barley, which is driving demand for those crops.

Saskatchewan doesn't grow corn, but it does grow a lot of wheat, barley and canola. The pressure on wheat and barley prices is really being driven by corn moving to ethanol production. But canola? Well, those nice flat prairie fields grow the bulk of Canada's canola, and canola is a prime component in the production of the "biodiesel". Biodiesel is the environmentally friendly version of diesel fuel, and is the Canadian government's version of the ethanol initiative in the States.

So, the energy sector is actually driving a rise in the price of farmland.

A "commodity rally" has been predicted by various analysts for some time. However, farmland has been a solid performer in the real estate market overall even without the help of ethanol and biodiesel, returning an average of almost 11% returns annually for the past 15 years. That's pretty good when you consider that the interest rate on your savings has likely been 1% or less.

At the moment, you'd be much better off investing in a farm than that condo in Manhattan. Current year over year returns on the condo would be a measly 3.2 %. Overall, house prices are still showing declines across the US. So, a good exit from the house-flipping dilemma could be investing in farmland.

Farms tend to qualify for a variety of incentives and government programs, which can also make them an attractive investment. However, you still need to find a way to get a mortgage for your farm property. You'll have to pick the right mortgage type for your needs. You might also want to know who offers those kinds of mortgages. If you want to do some legwork, check out some of the farm mortgage companies who sponsor this site.

Michael Chantrel

Posted by mbbcat on March 14,2007 at 12:58 AM
farm prices up 35 % in 2 yrs - after being depressed for decades - time to sell - take the money & run!
Posted by Michael on February 22,2007 at 9:26 AM
While I hate to agree with you -- because something should be done about polluting fuel -- I do.

We actually use more fuel and petro products (like fertilizers, pesticides and the like) to grow corn than any other crop. Using ethanol in fuels fundamentally just means that we are using oil in a different part of the process -- in this case, to grow corn rather than run cars.

But if you are looking for an investment, I'd say: buy farmland. It will take the market awhile to figure out that ethanol isn't the next best thing, and by the time they do, farmland will be valuable for other reasons...
Posted by Stuart on February 22,2007 at 9:04 AM
Bio-fuels aren't really environmentally  friendly. To make these fuels widely available we are going to use lots of land normally used for growing foods. Also as farmers are not growing corn for food, I feel this will also accelerate the rise of GM crops. Sooner than later the soil be useless. Bio-fuels should be regarded as a stop-gap fuel to be used while we develop truly renewable fuels.
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