Ray Kvalvog thinks it's a no brainer. Farmland is the best investment going.
“They're fortune tellers. They have to be. They have to think about how this is going to be not just this year or next year, but in 2010 and maybe 2015. It's not a science, it's an art.”Steve Taff
"We're kind of in the heyday of farming right now. It's about as good as it's probably ever been and is going to get for awhile," says the Fargo farmer and real estate investor.
Kvalvog is among more than 30 people crowded into a large room at Pifer Auction Service in Moorhead. Up for auction is some prized Red River Valley farmland. The bidding escalates quickly before stalling at $2,500 an acre. Auctioneer Kevin Pifer urges the bidders higher.
"If you're going to buy land you want to buy good to excellent land with a lot of muscle in the soil," exhorts Pifer. "Today you have an opportunity to buy some of the best land."
Ray Kvalvog is the top bidder at $2,500 an acre. He says he wouldn't have been surprised to see the land reach $3,000 an acre. Last week he paid $5,000 an acre for land near Austin, Minnesota, where land prices have traditionally been higher than the Red River Valley.
Kvalvog says he owns about 10,000 acres across Minnesota and Eastern North Dakota. And despite the rising prices, he's still buying.
"As I've told my wife, 'When I pass this earth, sell everything else we have, but hang on to the farmland,'" says Kvalvog. "It's an easy investment -- it's easy to own, easy to manage. Easier than an apartment building where you've got toilets to fix and driveways to clean."
Kvalvog says he expects only about a five percent annual return on his land investment. But he says the land value is rising by up to 20 percent a year and he expects that trend to continue.
Farmland values increased 14 percent nationwide in the past year. Experts say high quality farmland has increased in value much more rapidly.
Auctioneer Kevin Pifer says it's a time of optimism. Record prices for wheat and corn and soybeans are putting a lot of money in farmers pockets, and Pifer says when farmers have money, they want to buy land.
But Pifer is also seeing more wealthy investors put their bets on farmland.
"They're selling other properties in the bigger markets of the United States right now and coming back into this part of the country and buying land," says Pifer. "The big difference is these investors have a lot more money than their counterparts in the 70s and 80s. And the main difference is they're here to stay."
Farmland prices exploded in the 1970s driven in part by speculative investors. Those high land prices played a role in the farm crisis of the 1980s.
Knowing that history makes the rising land prices a little unnerving for North Dakota State University Agricultural Economist Skip Taylor. "It never ends well," says Taylor of rapid rises in farm land prices. He says rising land prices in the 70s were oftne driven by emotion, not logic and he worries this may be the same scenario.
"The last one ended because of interest rates. 19 to 20 percent interest rates," says Taylor. "I don't see that this time unless our dollar totally falls apart overseas. Next year, profits look pretty good. After that we don't know."
There are many uncertainties, according to Taylor. How long will those high prices for wheat and corn and soybeans last? Will the ethanol boom continue? What will happen with the U.S. farm bill? How will farmers handle high fuel, fertilizer and land costs?
Farmland rents are also rising sharply, causing some farmers to rethink multi-year leases, or look to buy land instead of renting.
University of Minnesota Economist Steve Taff agrees there are many reasons for caution. But Taff is not convinced the land market is overheated.
"Some days I can convince myself there's no sign of the bubble bursting, unlike in the housing market," says Taff. "Because I don't think the land market shares some of the risk prone behavior of the housing market in the past several years."
Taff produces an annual report on land sales in Minnesota. He says until annual land sale data is compiled early next year, most of the information is anecdotal. He says it appears more investors may be buying farmland, but he believes most buyers are still the farmer down the road, wanting to expand.
Taff says land prices can be driven as much by psychology as by economics. So as long as farmers and investors have confidence in the farm economy, he expects prices to keep rising. "They're fortune tellers, they have to be. They have to think about how this is going to be not just this year or next year, but in 2010 and maybe 2015," says Taff. "It's not a science, it's an art that everybody has to be engaged in."
The current optimism in farm country means land auctions will keep drawing crowds of farmers and investors, with their checkbooks open.