One opinion is that “crazy high” farmland prices are mainly the result of farmers bidding against each other. “They usually involve one of two situations: competition between what I will call ‘un-fond’ neighbors or livestock feeders,” wrote Murray Wise, the founder and head of Murray Wise Associates, Inc., in the company’s latest newsletter.
He says the highest prices for farmland staying in agricultural production that are publicized are the unusual, not the norm. He also explains that livestock feeders have a very strong incentive to purchase additional farmland.
Wise’s comments are here: “We all hear about the $15,000 an acre sale in northwest Iowa followed by a $20,000 per acre deal and just shake our heads. Why would prices be that high?
“Well, first of all, they aren’t that high. Such sales…and there are some… are very few. They’re statistical outliers, the exceptions that prove the rule. I think we are all aware of that. However, in examining some of these sales, I see some common denominators. The first commonality is a negative: there are no investors involved, only neighboring farmers. Then, they usually involve one of two situations: competition between what I will call ‘un-fond’ neighbors or livestock feeders.
“Neighbors who don’t like one another are occasionally subject to irrational bidding. You might call it the “spite” effect.
“Livestock feeders on the other hand see double value in quality farmland because they need acres over which to spread their feedlot by-product. To remain in compliance with their EPA permits, they must have sufficient cropland to support their herd. This second utility makes the land more valuable to them than for the mere raising of crops. Their bids often reflect this enhanced value.”
Wise’s company is one of “transaction experts” in land, auctions and agribusiness.