Prices may be sagging in housing, but they're booming in a segment of the real estate market that deserves a close look by investors: Prime farmland acreage, where global demand for biofuels and other agricultural commodities are driving up values to all-time highs.

Iowa farm acreage prices set a record last year -- it was the fifth straight record in a row -- hitting an average of $3,908 an acre. Some top-yielding corn-producing areas in the state are seeing prices as high as $6,000 an acre.

An expert on farmland acquisition and management, Murray Wise of the Westchester Group, Inc. of Champaign, Ill., says hefty annual gains in farmland values -- in the Midwest and elsewhere around the country -- are attracting what he calls "a tidal wave of investors" into the field.

Unlike the housing boom, farmland appreciation isn't being propelled by wacky financing or speculators looking to flip property. Nor is it solely based on the surging popularity of biofuels.

"This is not an ethanol bubble," Wise told a recent global land conference in Colorado. "There are several fundamentals that are showing that the next 10 years for agriculture will be extremely favorable."

A key force driving prices up is the fast-growing worldwide caloric demand for soy, wheat and corn -- to feed populations of developing countries.

For example, China used to be the world's third largest exporter of corn. Now, it's a net importer. China is importing 4 percent of America's entire annual pork production, and its demand for soybean oil -- a crop grown extensively in the U.S. - has more than doubled in recent years.

Wise, whose firm acquires, markets and manages farmland for investors, said good acreage has been returning an average of 11 percent a year -- that's better than a lot of stock and bond market alternatives.

But like all investments that sound enticing, farmland isn't a sure bet. If you haven't done your due diligence, you can lose a bunch of money.

Plus there's the perennial problem with real estate: With prices booming, could you be buying at the top of the cycle and pay too much? Absolutely!

If you do invest, you can put your money into a professionally-managed fund that specializes in farm ownership and management. Or you go out and buy a working farm yourself.

If you choose the latter, make sure you hook up with experienced professional advisors who can guide you step by step from acquisition to crop production and marketing.

Unless, of course, you're farmer already…and you know all that good stuff.

Published: March 7, 2008

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Kenneth R. Harney writes an award-winning, nationally-syndicated column on housing and real estate from Washington, D.C. He is also managing director of the National Real Estate Development Center, a professional education company. He is a past member of the Federal Reserve Board's Consumer Advisory Council, a committee that by federal statute reviews all Fed actions on home mortgage, consmer credit and banking industry regulation. He served as a member of the U.S. Department of Housing and Urban Development's Working Group on Computerized Loan Origination (CLO) systems, and is a member of the Editorial Board of the Fannie Mae Foundation's journal, Housing Policy Debate. He is the author of two books on mortgage finance and real estate.