"They're not making any more of it, you know."
(Old saying about why land is a good investment).
A local bank in the heart of "King Cotton" country apparently still believes in that saying. On a recent drive through a Southern state I saw a billboard for that bank which read, "We Finance Land."
I'd taken that drive several times in recent years but this was the first time I saw the billboard. Most bank billboards advertise financing for homes or cars, even in rural areas. Yet this ad implied that the bank sees land as the "in" thing.
Here's my educated guess about why there and why now: According to a CNBC report (10/27), cotton prices are in a historic boom:
"It's at pricing levels not seen since just after the Civil War, spiking about 80 percent since the early summer. Considering that just about everyone wears a lot of it every day, we traveled to the cotton heartland of Tennessee to get more insight.
"'It's really been amazing,' said Howell Moore, who runs a cotton-growing and gin operation in Sommerville, Tenn. 'We haven't seen anything like this. I have seen it take a couple of runs before in my life, but nothing like this. It doesn't seem to have an end to it.'"
And farmland in general is holding up well:
In the U.S., farmland rose slightly in 2010 and is down only marginally from a 2008 peak. The Los Angeles Times reports that investors now see it as a 'safer bet than stocks.' 'Wealthy Americans and private funds alike are gobbling up Washington apple orchards, Illinois cornfields and Louisiana sugar plantations. There is a sense of romanticism and relief at the idea of putting money into something as tangible as dirt.'”
EWI Financial Forecast, October 2010
Consider the price trend in farmland over the past century. The chart below is current through the first half of 2009:
But does the chart above mean "the trend is your friend"? Or are farmland prices due for a substantial decline?
A year ago, the Financial Forecast Service observed that "The relentless upward bias in farmland values over the last century causes it to be perceived as a one-way street...."