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Land Values Should Decline Moderately Over Next Decade

July 7, 2011
 
 

Source: Rabo AgriFinance

Agriculture land prices in the U.S. have increased steadily over the last decade, leading experts and landowners to question whether the high values are sustainable. The short answer from the Rabobank International Food & Agribusiness Research and Advisory (FAR) group is that the land value rates are not a speculative bubble, but a decrease in land values over several years is a definite possibility.

The FAR group’s research concludes the steady increase of agricultural land values over the past five years is not linked to speculation or other factors that traditionally result lead to a bubble. However, the research does point to factors that could combine to drive a decrease in land values over the next decade. If land values do adjust down over the next three to seven years, the reduction in value will be moderate and not a crash.

The findings are based on the FAR team’s global agribusiness marketplace report, “Blowing the Farmland Bubble.” According to the report, the drivers behind the increase in the value of crop land since 2005 have been a combination of increased commodity prices, low interest rates and a limited supply of land available for sale. Over the past five years, productive agricultural land value in the U.S. has grown at an average rate of between 20 and 70 percent, with the most significant growth in areas producing intensive field crops or livestock.

Co-author Sterling Liddell, vice president, FAR, says a crash is unlikely because current trends in the U.S. are driven by fundamental economics and moving more heavily toward the long-term investor.

“Drivers of bubbles tend to be buying and selling by speculators. The increasing presence of farmers on the buyer side of agricultural land combined with a tight supply of land available for sale provides significant evidence there is not currently a speculator-fueled bubble.”

Liddell notes that another year of strong margins combined with the anticipation of continued tight supplies should drive land prices higher for at least one or two more years. “On a longer term basis of three to seven years, the probability of land values adjusting negatively outweighs the possibility of a continued upward trend.”

Many factors may affect the price of land over the next decade. The largest risks include the trend toward absentee farmers as land owned by aging farmers changes hands to non-farming heirs; interest rates; global commodity supply and demand; water availability and, new environmental restrictions; reduced farm margins; biofuels policy and inflation.

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COMMENTS (2 Comments)

MBJ - North Platte, NE
I think that it is important to note that although land prices have risen significantly, I am not a believer that land prices will actually fall. I do believe that the rate of increase will slow and maybe even stop, but there are very few acres on the market and most buyers are using very little if any leverage to purchase. Thus, there will be no pressure to sell. This situation is not at all like the early 1980's.

Long range, food will be at a premium that will hold land prices high and bring meat prices with them.
10:16 AM Jul 7th
 
MBJ - North Platte, NE
I think that it is important to note that although land prices have risen significantly, I am not a believer that land prices will actually fall. I do believe that the rate of increase will slow and maybe even stop, but there are very few acres on the market and most buyers are using very little if any leverage to purchase. Thus, there will be no pressure to sell. This situation is not at all like the early 1980's.

Long range, food will be at a premium that will hold land prices high and bring meat prices with them.
10:16 AM Jul 7th
 



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