Is An Arkansas Land Boom Coming?

In news from Arkansas, demand for farmland there has spiked dramatically since a year ago. While other investment vehicles still remain stagnant, rising grain prices have rocketed farmers into acquisition mode.

Commodity prices and farmer profits have spurred what may be called a sort of Arkansas land bonanza of late. Profits are being directly re-invested into buying more farmland, while interest rates make such purchases even more desirable. Now investors other than farmers are seeing benefit as well, which is only making the demand rise too. Lee Vermeer, AFM, Vice President of Real Estate Operations at Farmers National Company, had this to say about the situation:

“While 75 to 85 percent of land buyers continue to be farmers, interest among outside investors has risen. Despite the robust demand driving sales activity levels, reports show that lenders are taking a relatively conservative approach to lending. Strong profits the past few years have provided cash for farmer buyers, while investors are taking cash from other sources to rebalance portfolios.”

Land prices are rising in other areas of the country as well. Flooding and other factors, combined with the growing demand for certain crops, has made farmland investment a viable alternative even for commercial investors. Tennessee, Mississippi, Arkansas, Alabama, western Kentucky, Louisiana, and southern Missouri are all seeing the same kind of price increases as Arkansas.

Monty Meusch, an expert from Farmers National Company, reported on land prices in Iowa, Kansas, Missouri, Nebraska, and South Dakota recently, showing cases where prices far exceeded expectations in recent land auctions. And while not much is mentioned about prices tied to high tech alternative fuels, food shortages, and similar market drivers, it seems clear farm land will see sustained price and demand stimulation.

The Watt reports 2011 seeing a 20 % rise in demand for biofuels,  and already Brazil is on the verge of severe constraints where the ethanol industry there is concerned. Land may soon come at a bigger premium than any other real estate commodity.

Arkansas and other agriculturally grounded states may be the first to see farmland prices spike, but as the demand for farm products grows, farmers everywhere will clearly rich in cash to invest elsewhere. Georgia, South Carolina, North Carolina, and others of the Southern states once abundantly agricultural, may well see a resurgence with the need for biofuels and more argi-business.

But like all markets, farm land is also tied to so many other crucial sectors - in short, good news for some generally means higher prices and constraints for others. We will follow how these economies affect Arkansas' other real estate sectors.