Agricultural land values rise as crop prices soar

Tuesday, February 26, 2008

KANSAS CITY, Mo. -- Real estate values in cities around the country have been falling or remaining flat, but prices for agricultural land in Kansas and Missouri remain strong, thanks largely to high crop prices.

"In 2007 and probably continuing into 2008, agriculture is back in the driver's seat," said Rodney Jones, a farm management economist at Kansas State University.

A survey from the Federal Reserve said the price of agricultural land was up more than 20 percent in Kansas and the western third of Missouri in the last quarter of 2007, compared with a year earlier, according to The Kansas City Star.

Urban real estate values, however, have not fared so well.

"They are in opposite directions on the chart," said Larry Kueser, a Miami County, Kan., real estate agent who specializes in rural property. "It's a very interesting dynamic."

Although rural land has been attractive for some time as an investment or for recreational use, the recent surge is due to booming crop prices driven largely by the demand for biofuels, according to The Star.

Jones said corn and soybean prices had doubled and wheat prices tripled in the past two years. There is also an improved foreign market created by the weak dollar and growing demand for U.S. farm products.

Pasture land prices are also up because the high price of feed and grain makes grazing a cheaper alternative to feedlots, Jones said.

Since 2001, land prices have more than doubled in western Missouri and nearly doubled in Kansas, according to the Federal Reserve. The average value of an acre of cropland was $2,325 in western Missouri and $1,178 in Kansas, the survey showed.

Better rural real estate prices also means good news for some small-town businesses.

"The Ford dealer or Chevy dealer will benefit. The farmer may remodel his house, put in new furniture," said Ron Plain, an agricultural economist at the University of Missouri-Columbia. "The kids may get a new rifle and a four-wheeler. When the farmers have more money, everyone benefits."

In Beloit in north-central Kansas, factories that make tillage equipment are so busy they can't find enough employees, said Murray McGee of the Mitchell County Community Development office. A farm vehicle tire supplier is in the same situation, he said.

The good news, however, comes with a dose of caution.

Ron Kuglin, a rancher and farmer in the Holton area, north of Topeka, said the income boost for farmers was partly offset by higher costs. Fertilizer made from price-sensitive petroleum products has doubled in price in the past three years and costs $50 to $60 an acre to apply, he said.

Rising values increase a farmer's net worth but don't put more money in his pocket unless the land is sold, Kuglin said.

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