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September 2013 Archive for Your Precious Land

RSS By: Mike Walsten, Pro Farmer

Mike Walsten has covered major business trends in agriculture for more than 40 years.

RaboBank Warns of Potential 15% to 20% Decline in Central U.S. Farmland Values

Sep 27, 2013

Mike Walsten

A surge in interest rates could result in a 15% to 20% decline in central U.S. farmland values, warn economists with Rabobank. But because the bulk of recent farmland purchases have been made with the heavy use of cash instead of financing, the report authors believe the potential contraction will be manageable.

The report, from the Rabobank Food & Agribusiness (FAR) Research and Advisory Group, states the era of extremely low interest rates and extraordinarily high commodity prices is drawing to a close. "We'll likely see lower commodity prices this year, but they aren't going to be low enough long enough to substantially impact land values for the coming year or so," says report author and senior analyst Sterling Liddell. "In the short term, strong farmer balance sheets and high rental rates will support current levels. However, decreasing commodity prices will keep the value from accelerating as rapidly as they have been."

The report, "Land Values Peaking Out--But Not Down," finds in the medium term, the single greatest risk to U.S. agricultural land values is looming higher interest rates. Interest rates have been increasing through the first half of 2013, but based on the current Federal Reserve policy, a significant increase isn't expected until 2014 or 2015. "We are entering an era where planning how you're going to pay for your land is likely to become as important as planning for marketing your crop," notes Liddell.

The report forecast finds a decline in land values in the central U.S. of 15% to 20% percent over the next three years if commodity prices remain low and interest rates rise from below 3% to a rate more consistent with the early 2000s of 4%. "Given current Federal Reserve policy, 10-year and 30-year bond rates averaging less than 4% to 5% are the most likely outcome for for at least the next three years. While a return to 10% Treasury rates is possible, our current worst-case scenario is a 6% interest rate similar to the 1990s," the report states.

In the Western and Southeast U.S., the decline will be less marked than in the Midwest, the report states. The key determinant in the susceptibility to land value changes is an area's reliance on grain and oilseeds. While an increase in interest rates will have a similar impact on agricultural land values throughout the country, the amount of change will depend on the type of crop production and proximity to urban areas.
 

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Iowa Survey Finds Slowdown in Farmland Values

Sep 19, 2013

The value of Iowa farmland barely increased the past six months, confirming what we've been telling subscribers to LandOwner Newsletter the past several months. According to a semiannual survey of farm real estate professionals conducted by the Iowa Chapter of REALTORS Land Institute, the value of an acre of Iowa farmland rose a scant 1.2% between March 1 and Sept. 1. Combining that increase with the 9.4% gain reported in March for the previous six months, the value of an acre of Iowa farmland rose 10.6% from Sept. 1, 2012 to Sept. 1, 2013.

The nine crop reporting districts showed a mixed response for the just-completed six-month period. The districts varied from a 5% increase in the East Central district to a 0.7% decrease in the Northeast district since Mar. 1. Changes reported by district were: Central, up 1.1%; East Central, up 5%; North Central, up 1.7%; Northeast, down 0.7%; Northwest, up 0.8%; South Central, up 2%; Southeast, up 2.8%; Southwest, down 0.5%; and West Central, down 0.5%.

The steep decline in commodity prices coupled with the "extremely tough growing season" are the two primary factors behind the limited gain in Iowa farmland values, states RLI President and survey coordinator Kyle Hansen, ALC, Hertz Real Estate Services, Nevada, Iowa. In addition, the bulk of the farmland recently available to the market has been medium- to lower-quality farm ground, categories of farmland that traditionally sport a weaker level of demand. "There is still strong demand for high-quality farmland," Hansen says, "but there is very little high-quality farmland available to the market."

Over the past six months, the value of an average acre of high-quality cropland rose 2%, the value of medium-quality cropland increased 1% and the value of low-quality cropland remained unchanged, according to the survey. In addition, the value of non-tillable pasture rose 1% and the value of timber land declined 1%.

If interested in seeing a copy of Landowner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

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