Investors push farmland prices higher: report

CHICAGO (Reuters) - The slump in residential real-estate prices may have pushed speculators out of the housing market and into farmland, lured by the growing biofuels market, a report said on Monday.

Speculators are helping to drive the price of farmland higher, optimistic that the push to commercialize biofuels has fundamentally altered the rural landscape and created a safe haven from the woes plaguing the U.S. economy.

"The sub-prime mortgage meltdown is causing some investors to look at buying tangible assets, i.e. farmland," according to the survey of professional farm managers and rural appraisers conducted by the University of Illinois.

In Illinois, which ranks second nationally in the export of agricultural commodities, farmland prices have risen between 6 to 17 percent over the past 12 months, the report said.
Illinois and neighboring Iowa, where average farmland values have increased by over 70 percent over the past five years, according to a separate report from Iowa State University, produce one-third of U.S. corn and soybeans -- both critical building blocks in the production of ethanol and biodiesel.

The price of corn and soybeans hit record highs this year as oil has risen above $100 a barrel and the push for renewable forms of alternative fuels has gained traction. As farm incomes have risen, farmers have invested in their businesses by snapping up arable land and buying new tractors and combines.

But while farmers are playing a big role in driving land prices higher, so too are big city speculators, says Bob Swires, the general chairman of the 2008 Illinois Land Values Survey and Conference, where the report was released.

"Investors are seeing agriculture as a producer of energy, not food and that is making investment in land very attractive," Swires said.

U.S. Agriculture Department data shows the average value of U.S. crop land hit a record $2,700 per acre in 2007, up from $1,340 per acre in 1998. Illinois farmland averaged about $4,460 per acre in 2007, the USDA data showed.

Although the report says there has been "a sharp drop in demand" from residential builders in so-called collar counties around big cities like Chicago and St. Louis, prices are still up even there with some buyers willing to fork out as much as $8,000 an acre for the most productive land.