Could Lower Farmland Values and Softer Cash Rents Be on the Horizon?

November 2, 2015 05:45 AM
Could Lower Farmland Values and Softer Cash Rents Be on the Horizon?

Lower land values and cash rents are on the horizon as low commodity prices pressure farm profitability, according to Brent Bidner, farm manager at Hertz Farm Management in Monticello, Ill.

He believes upcoming land sales in particular will be key indicators of what to expect in 2016. “The story will probably be told in the next 30 to 45 days. There’s a lot of land for sale,” Bidner said during Allendale, Inc.'s Oct. 27 Ag Leader webinar.

Still, the market for farmland remains stronger than one might expect, given low crop prices. “I think land values are probably only actually down 5%  to 10%,” Bidner said. “I think in people’s minds it may be lower than that, but we still have some strong buyers.”

Small increases in interest rates by the U.S. Federal Reserve, he pointed out, would only marginally affect the land market. Reduced farm profitability stemming from low commodity prices and high input costs would be the main driver of land values and cash rents.

University of Illinois agricultural economists Gary Schnitkey, Bruce Sherrick and Todd Kuethe also argue in a recent study on farmland values that steep losses in net farm income and a decision by The Fed to raise interest rates unexpectedly would be the most probable factors that could push values significantly off their gradual downward 

“If large farmland price decreases do occur in the near future, it is likely that they would be associated with unexpected interest rate increases or additional shocks to expected future agricultural income," according to their “2016 Farmland Price Outlook.”

Falling farm profitability, meanwhile, could be opportunities for younger farmers to grow their operations as older farmers exit the industry to prevent loss of retirement savings, Bidner said.

“As people look at cash flows, do people want to take out of their retirement?” Bidner asked. “So, I think there’s going to be some opportunities for some younger farmers to grow. But, I also think there will be some consolidation, and some of these other operators are going to get bigger.”

What are you seeing in your areas for farmland prices and cash rents? Let us know in the comments. 

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Spell Check

Linton, ND
11/2/2015 06:37 PM

  People want anything tangible other then the U.S. Dollar, they know the day of reconing is close at hand! The last thing in the world I would sell is land!

young farmer
rice, MN
11/3/2015 12:35 PM

  The prices of land or rent will not go anywhere. Things could get a lot worse and they still wouldn't. Big farms are ruling farming and they can only stretched so thin........... but that is very thin and we are nowhere near that. Especially at this time of year when the stupid welfare checks are coming out. You saw a lot of new equipment before the check even. Those checks ruin farming. The big boys are the ones who get rich. If they can't do a GOOD enough job, then QUIT, because a lot of farmers can. this is welfare for the rich and to support those who can't do a good enough job to sustain themselves. RIDICULOUS

Fredericksburg , IA
11/2/2015 05:01 PM

  I think that maybe the price imputed should come down. Why is It always have to be the renter has to lose the money? It is ridiculous the cost of seed corn, fertilizer, etc for crop input. Also you see all of these big farmers with new equipment and new pick ups. Plus tax payers are paying some of the federal crop insurance .


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