Posted: Tuesday, January 29, 2013 10:48 AM
Farmland values increased 10 percent for a group of real estate investors in 2012, with the trend toward appreciation strengthening over previous years.
"Farm prices are clearly on the rise," said Jeff Havsy, research director for the National Council of Real Estate Investment Fiduciaries.
The non-profit trade group tracks the values and incomes of more than 500 farmland investment properties across several regions of the U.S. that are collectively worth $3.5 billion.
Including income as well as appreciation, investors tracked by the index earned returns of 18.5 percent on their assets last year, up from roughly 15 percent in 2011 and 9 percent in 2010, according to NCREIF.
The Midwestern drought actually seemed to push up farmland values in 2012 due to strong commodity crop prices, but if drought conditions persist they can be expected to weigh negatively on values, said Havsy.
While land appreciation was the most robust in the Corn Belt, at 20 percent, values expanded across the regions tracked by the index, including the Pacific Northwest.
Consistently rising property values can be indicative of a bubble that will eventually pop, but it's also possible for the appreciation rate to level off before it overheats, said Havsy.
"Which way this one is going to go, I have no idea," he said.
Aside from strong crop prices, investors are buying farmland due to fears that the U.S. government's "easy money" policies will lead to inflation, Havsy said.
"People are looking for alternative investments," he said.