Bearish View On Farmland Ownership
Jul 22, 2009
Here's a bearish outlook for farmland values that's worth reading. The author lists 13 agriculture "myths" and explains how these myths will result in lower land values in the years ahead. Our view: land demand will be soft for the next several years as farmers -- the no. 1 buyers of farmland -- struggle with much tighter operating margins. The economy currently faces deflationary pressures, which will also limit demand.
However, the land market avoided the high-leverage seen in the housing market. This gives owners staying power in the face of a downturn. And demand for top-quality farmland will tend to hold up over time as well-capitalized operations expand if the right piece of property (high quality and/or the farm next door) comes available. But demand for poorer quality ground will likely remain weak for several years.
Current owners and potential buyers will also look at farmland as a storehouse of relative value, retaining purchasing power and value better than paper assets. That can be true in a deflationary environment but is especially true in an inflationary environment. Some investors are very worried about potential inflation once the economy works its way out of the current recession. This is the security factor that farmland ownership offers.
Click here to read the article. Read the posted comments, too. They are illuminating, as well.
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