For the first time in several years, land values have drifted lower. Mike Walsten, editor of LandOwner newsletter, says while these declines are minimal they are a start of a trend.
Here are the highlights of several recent land value reports:
- The Chicago Federal Reserve bank, which serves the central Corn Belt, reports "good" farmland values slipped 1% during the first quarter of 2014, but are 1% higher compared to a year earlier.
- The St. Louis Federal Reserve bank, which serves the southern Corn Belt and mid-South, reports farmland values slipped 6% on a quarterly basis but are 7.5% higher on an annual basis.
- The Kansas City Bank, which serves the Central and Southern Plains, western Missouri and several mountain states, reports the value of dryland cropland slipped 1.4%, irrigated cropland rose 0.5% and rangeland increased 2.6% on a quarterly basis. On an annual basis, the bank reports dryland cropland is up 4.4%, irrigated cropland is 6.4% higher and rangeland is up 8.6%.
"These swings in values are consistent with what we've been reporting in LandOwner," Walsten says. "Demand for land is generally weaker but it quickly appears after a moderate setback in values."
With these weakening values, should farmers be looking to buy land? Walsten says farmers should be ready for the opportunity. He offers these tips:
Consider buying lower quality land.
High-quality ground is selling at reasonable prices, however, Walsten says, you may find some interesting buying opportunities in lower-quality land. "If you know what you’re doing and can take Class II land (soils that have some limitations or are poorer in quality) and get a Class I yield, that could be a buying opportunity," he says. "The good quality stuff has backed off a few percentage points, but the poor quality ground has gone down almost twice as much."
Know your cash flow needs.
"You still have to generate enough cash to make whatever payment you’ll have for that ground," Walsten says. Think about the worst-case scenario. In that situation, can you still generate enough cash to make payments and cover basic family needs?
Tighten your belt for a couple years.
Related to cash flow, Walsten says, it is important to really focus on servicing your debt on a new land purchase immediately. "If you can get through your first three years, you will probably be alright," he says. "Land values, over time, go up at about a 3 to 4% annual rate, so the appreciation will bail you out."
Walsten was a guest on Market Rally with Chip Flory on Monday, May 26. Listen to the full broadcast:
Read Walsten's blog: Your Precious Land
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