BY NANCY cotten HIRST

Contributing Editor, Delta Business Journal

After a harrowing experience in the mid-1980s, when farmers saw the value of their land plummet to frighteningly low levels, the 1990s have seen a major recovery. Beginning slowly early in the decade, the recovery picked up steam over the last two years and prices are now back to pre-recession levels.

The question on everyone's mind is, Can it continue? Land experts in and around the Delta differ in their individual assessments of the possibilities, but all agree that there are simply too many variables to predict the trend with any accuracy.

For a little deep background, says John Dean of Landmart/Dean Land & Realty Company in Leland, we need to go back to the 70s. There was a rapid increase in land prices in the late 70s and early 80s. Then there was a massive drop. This was true of all agricultural regions in the nation, not just Mississippi. The drop was as drastic as 50% in some areas - thank goodness not here.

ÒA lot of the increase had been due to wild speculation in the 70s and 80s, particularly in class three soils. Those are the lands used for soybean and rice production, catfish ponds and other uses. They fell the hardest and really only began recovering in the last three years, Dean says. But they have experienced the most increase in the last two years.

The higher grade lands didn't fall as much, so the percentages haven't been as great in the recovery. The bottom for land prices came in 1986. At that time the bottom feeders began coming back in. As it turned out, they made very wise decisions, buying investment grade farm lands, Dean continues.

Things began moving up - a slowly sustained growth - around 1991 and 92. It's picked up speed since then. In the corn belt, the gains have been as high as 15% to 20% per annum. We haven't experienced that, and that's good. We're not seeing those increases, but good, steady ones for the past three years.

The figures are hard to pin down, because they differ so depending on many factors, but we've probably had about 7% per annum on the better grade farm land over the last three years. There's actually very little quality land on the market right now. It's evaporated, so to speak.

The economy has been extraordinarily good, Dean explains. People are putting their money in stocks and other investments. We've had a lot of pension and other institutional buyers, local buyers looking to expand, 1031 tax deferred exchanges. There's a healthy mix of people in the market place.

Why the Delta? Historically it's the best place in the world for farming. The banks of Deer Creek have been compared with the Nile Delta. We have deep alluvial soil and a rechargeable aquifer. That's not the case in many other places. Also, as opposed to the late 70s and 80s, people are more realistic in their approach. This recovery is based on good economics, not speculation. People are looking for a reasonable return.

ÒTechnology may be driving some of the institutional buyers, Dean adds. We have sixteen corporate agricultural research farms right here in Washington County. That's more ag research than anywhere else in the world. People look to this area for advances in genetic engineering.

Dean lists companies like BASF, AgrEvo USA, Dow Elanco, Novartis, Monsanto, and Rhone-Poulenc, and sends a list adding DuPont, Kumiai, Pioneer, Phytogen, Stoneville Pedigreed Seed, Sure Grow, Terra International, Terral Seeds, Valent USA and Zenneca. In addition, he lists nine government research facilities from the Stoneville Agricultural Research Complex to USDA, US Forest Service, and state facilities to the National Warm Water Aquaculture Center.

Bruce Brumfield, who farms near Indianola and is involved in banking as well, has reason to watch land prices. He agrees with Dean's history. We had dual reasons for the depressed prices, he says. There was a slump in the farm economy and high interest rates. The recovery has been slow and steady, but has been faster the last couple of years. Sales prices are approaching their old peaks, although at inflation-adjusted values they may not be quite as high.

ÒI expect that land prices will begin leveling off. We had higher grain and soybean prices, high corn and beef. We enjoyed that, but it isn't there anymore. Prices are impossible to quote. They're all over the board depending on improvements, soil type, water, whether it's under cultivation. They're around $900 to $1500 in our area. They were between $500 and $750 at the bottom, so there's been a big improvement.

Jim Rutledge, who is co-owner of a farm land and investment business in Memphis, says that cotton land was the first to recover after the recession. Now we're seeing it in soy bean and rice land. They've been real strong in the last 18 months to two years. We're seeing cotton land go for $1200 to $1800 per acre, rice and soybean from $900 to $1400. That is up dramatically.

In the 1980s land prices just got way too high and commodity prices were low. It's on pretty stable footing now. People are doing pretty well. There's a lot of institutional interest. Pension funds and insurance companies buy the land and rent it out as an investment. We're seeing a lot of tax-free exchanges. People will sell to an institutional investor and buy another farm.

It's hard to predict the future, Rutledge says. But land values in the Midwest are extremely high, and that will probably filter down. Land here is still relatively cheap and there's a great deal of development left to be done in the Delta. We have an asset in the water situation. We have reliable rainfall and ground water as well as good land.

As agriculture goes nationwide, so it will go in the Delta, but put me down as an optimist. A lot of good things are going on.

Gwin Smith, Rutledges partner and a native of Cleveland, says he is also optimistic about the stability of land prices. The biggest question mark will be the USDA program. The Freedom to Farm Act will expire in 2002 and that could cause some problems.

The fundamentals are a lot more sound than in the 1970s. The cost of money is so much lower and technology is so much better - it decreases labor costs and increases yields. There will always be an occasional bad crop or prices swinging down. That is the nature of agriculture, but basically things are sound, Smith concludes.

Rives Neblett, a farmer and President of Southern Farmland Investments, a brokerage firm in Shelby, also agrees with Dean's history and the comments of Rutledge and Smith. Neblett reiterates that the substantial drop in commodity prices created in part by the Asian financial crisis and drop in agricultural exports; along with the reduced transition payments and the Aflatoxin problem in the 1998 corn crop, have created the thinnest operating margins in recent years for many Delta farmers.

This could cause a dampening affect on land values in the near term, says Neblett.

Neblett emphasizes however that the explosive optimism in Ag BioTechnology along with the long term growth in the economies of the Pacific Rim and other emerging countries will create an environment favorable for longer term farm appreciation.

David Laughlin, who directs MSU's program that provides annual studies of agricultural land values for tax purposes, is less optimistic about the next few years. Land is a market-driven commodity just like any other commodity, he points out. It is much more keyed to productivity, particularly since the 1995 Farm Bill. And when the bill expires in 2002, marginal land will be worth much less without government supports.

I believe land prices will be more volatile, more ups and downs. Land values CAN go down. It can happen again. I'm not saying it will, but it's possible. I hate for people to forget those lessons. Land is a long-term asset and it responds like a long-term asset. It is not a high-yield investment, but is a relatively safe one if it is treated as a long-term investment. I always say be careful with the unknown, Laughlin concludes.

Whether cautious or optimistic, no one is willing to risk a forecast without a crystal ball. All agree, however, that land has made a remarkable comeback, and that if treated with good business fundamentals, will remain a good investment for the foreseeable future. DBJ

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