4 Drags on Farmland Values

April 3, 2018 09:47 AM

The average value of farm real estate increased by 47% between 2009 and 2017, according to the 2018 U.S. Baseline Outlook compiled by Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri.

Average U.S. farmland values are expected to soften over the next decade. Analysis from FAPRI shows the average value of farm real estate to decline slightly—to $3,002—between 2017 and 2021.

Long-Term Trend Shows Stable U.S. Farmland Values

What is keeping farmland prices under pressure? Here are four key factors to watch. 

  1. Interest Rates. On March 21, the Federal Reserve raised the key interest rate by 0.25% to 1.75%. This is the highest level it’s been since 2008. In December, Fed officials said they intend to raise rates three times in 2018. The U.S. economy has the potential to expand 2.7% in 2018, according to the Fed, and steeper hikes could be in store for 2019 and 2020. 

    “A rising interest-rate environment is a drag on farm profitability,” says Jackson Takach, Farmer Mac economist. “The more debt you have and the higher the interest rate, the more interest expense you’re going to have to pay. That eats directly into profitability.”
  2. Commodity Prices. “Corn and soybean prices directly affect farmland values,” says Doug Hensley, president of real estate services for Hertz Farm Management. After reaching all-time highs a few years ago, commodity prices remain subdued. 
  3. U.S. Trade Policy. “Exports are a big part of our corn and soybean market,” Hensley says. “Any significant change in our trade markets will have a significant impact on farmland values.” 
  4. Farm Income. Since 2013, income from farming and ranching has fallen by 50%. Meanwhile, farm debt has increased more than 30% in the past decade, according to USDA. 

    “Lenders have become more cautious in the amount of money they will loan for land purchases,” says Randy Dickhut, senior vice president of real estate operations for Farmers National Company. “Lower incomes and reduced cash flows have been a major contributor to the gradual decline in land values the past four years. Projected lower incomes in 2018 will continue the pressure on land values.”

Yet, you can still make a case for a somewhat bullish farmland market. Many regions have been showing relatively strong, or even increasing, farmland values, according to the 2017 fourth-quarter reports from four Federal Reserve banks. See our recent snapshot in LandOwner newsletter.

Farmland Values

Hear more farmland market analysis from Hensley:

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Spell Check

bad axe, MI
4/3/2018 10:43 PM

  Wait til Trump files bankruptcy on the Fed's debt of 21 trillion, then the next question what are you going to do with the 49 trillion the private citizens owe . The European Union doesn't want our money anymore since that budget deal trump signed a couple of weeks ago. You guys got a pretty good gig just have the federal reserve print a bunch of fiat and buy your own bonds to fund our over inflated utopia. You can make land values what ever you want just print more fiat , throw it into the system. The whole world is finally turning against the US dollar to muster it out of the world banking system and it's about time and it's about time.


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