Investors driving up land prices?

Braden Janowski has never planted seeds or brought in a harvest. He doesn't even own overalls.
Yet when 430 acres of Michigan cornfields were auctioned last summer, it was Janowski, a brash, 33-year-old software executive, who made the winning bid. It was so high -- $4 million, 25 percent above the next highest -- that some farmers stood, shook their heads and walked out. Janowski figures he got the land cheap.
"Corn back then was around $4," he said from his office in Tulsa, Okla., stealing a glance at prices per bushel on his computer. Corn rose to almost $8 in June and trades now at about $7.
A new breed of gentleman farmer is shaking up the American heartland. Rich investors with no ties to farming, no dirt under their nails, are confident enough to wager big on a patch of earth -- betting that it's a smart investment because food will only get more expensive around the world.
They're buying wheat fields in Kansas, rows of Iowa corn and acres of soybeans in Indiana. And though farmers still fill most of the seats at auctions, the newcomers are growing in number and variety -- a Seattle computer executive, a Kansas City lawyer, a publishing executive from Chicago, a Boston money manager.
The value of farmland has almost doubled in six years. In Nebraska and Kansas, it's up more than 50 percent. Prices have risen so fast that regulators have begun sounding alarms, and farmers are beginning to voice concerns.
"I never thought prices would get this high," said Robert Huber, 73, who just sold his 500-acre corn and soybean farm in Carmel for $3.8 million, or $7,600 an acre, triple what he paid for it a decade ago. "At the price we got, it's going to take a long time for him to pay it off -- and that's if crop prices stay high."
Buyers say soaring farm values reflect fundamentals. Crop prices have risen because demand for food is growing around the world while the supply of arable land is shrinking.
At the same time, farmers are shifting more of their land to the crops with the fastest-rising prices, which could cause those prices to fall -- and take the value of farms with them. When the government reported June 30 that farmers had planted the second-largest corn crop in 70 years, corn prices dropped 8 percent in two days.
Even if crop prices hold up, land values could fall if another key prop disappears: low interest rates.
When the Federal Reserve cut its benchmark rate to a record low in December 2008, yields on CDs, money-market funds and other conservative investments plunged, too. Investors were unhappy about earning less but were too scared about the economy to do much about it.
As they grew more confident -- and more frustrated with puny returns -- they shifted money into riskier assets such as stocks and corporate bonds. To many Wall Street experts, this hunt for alternatives helps explain the rapid rise in gold, art, oil -- and farms.
Those who favor farms point out that, unlike the first three choices, you can collect income while you own it. You can sell what you grow on the farm or hand the fields over to a farmer and collect rent.
In Iowa, investors pocket annual rent equivalent to 4 percent of the price of land. That's a 60-year low but almost 2.5 percentage points more than the average yield on five-year CDs at banks. That advantage could disappear quickly if the Fed starts raising rates. For now, though, investors can't seem to get enough of it.
Concern that farm prices may be inflated is serious enough that the Federal Deposit Insurance Corp. held a conference for farm lenders in March titled "Don't Bet the Farm."