A Booming Prairie Land MarketWant 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.
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