By the time the housing bubble was reaching its peak in mid-2006, developers were gobbling up farm land to build subdivision houses at the rate of nearly four million acres a year. When the bubble burst, the housing market collapsed and the developers were left holding acreage for which they had paid top dollar.
In time this led to foreclosures and bankruptcies — another chapter in the nation’s recession. Whoa. This chapter has a happy ending. Since 2007, the nation’s farm acreage has held steady and is today probably increasing slightly. The reason is not hard to figure out, though it has received little attention by the news media which concentrate on unemployment figures, the nation’s soaring debt and the Obama Administration’s over-the-top spending.
The reason for the changing dynamic in farm land? In many cases, farmers are buying back the land they sold to developers and putting it back into production. With the high demand and high prices for such commodities as cotton, corn and wine grapes, farmers who have purchased acreage from defunct developers are reaping profits two ways. In most cases, they re-purchased the land at a fraction of what the developers had paid them for it. Now, they have expanded production of crops that will bring them strong market prices.
An example: the Wall Street Journal recently related the experience of a group of soybean and corn farmers about 50 miles south of Chicago who purchased 650 acres from the bank that had foreclosed on the property. Developers had bought this “exurban” land to build houses for Chicago commuters. They paid up to $20,000 an acre for it. The farmers who bought it from the bank paid $8,000 an acre. The broker who handled the transaction opined that up to 20 years would pass before there would be a market for residential development in that area.
In California’s Central Valley a grower of nut trees and raisin grapes recently paid $27,600 an acre for 326 acres on which he will grow wine grapes and walnuts. That’s about one-fourth of what the bankrupt developer had paid for it a few years earlier. That developer had planned to build 1,500 homes and a shopping center on this farm land. Now, the new farmer owner expects to net a profit of about $1 million a year from his new plantings.
Demand is fueling this dynamic in many states. Prices for corn are at near-record highs. China’s insatiable demand for it means record shipments across the Pacific. As the Chinese middle class grows, its members eat more and more pork and want the enhanced flavor of corn-fed pork, so pork producers are non-stop buyers of U.S. corn. Here at home, the mandated requirement for the use in vehicle gasoline of that misbegotten fuel, ethanol, means demand for it is steady, thus keeping the pressure on corn production. Meanwhile wine production continues to grow as does the demand (and price) for cotton.
The moral of the story: the developer’s woe is the farmer’s silver lining. Even recessions have them.
Mr. Hannaford’s latest book, Reagan’s Roots: The People and Places Who Shaped his Character. is being published this week by Images From the Past, Inc.