Farmland Values in Correction Mode

January 22, 2015 07:42 AM
Farmland Values in Correction Mode

The days of sky-high farmland values are behind us—at least for now. Mike Walsten, LandOwner editor, says a correction in land values is under way. That was Walsten’s message as he presented at the 2015 Top Producer Seminar.

“I think we’re in the second year of a five-year correction in land values,” Walsten says. “During that total time, I see land values going down 20% to 30%.”

He says that will be the case unless some type of crop problem causes corn prices to shoot back up. “If you put the profits back in corn, you’ll have land values go up,” he says.

The main reasons farmland values are softening are:

  • Decline in commodity prices
  • Net farm incomes declining
  • Supplies relatively tight

“Even though we had a strong run-up in land values, not a lot of land was being sold,” Walsten says. “We used to turn over 3% to 4% of a county’s acreage base; it’s around 1% now.”

Regardless of the current economic changes, Walsten doesn’t think this decline in land values will resemble the crash of the 1980s.

“Farm balance sheets are strong, fewer farmers are highly leveraged and farmers have had more time to get prepared for the tighter cash flows,” he says. “Right now, based on what we know with interest rates going up and net farm income going down, it is a manageable correction and it will take about five years to get through.”

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Spell Check

Western, NE
1/22/2015 07:47 PM

  I'd like to see that, but in light of a sale that happened today, I'd have to say that in my area, they haven't softened yet although this was a very productive quarter that sold. Best thing that could happen to land values is higher interest rates and less urban sprawl. That would make the payments the same and reduce the value and less urban sprawl would reduce alien like kind exchanges! Just call me bitter!!

Mr. Anonymous
Greensburg, IN
1/24/2015 08:56 AM

  Farmland value is simple: Average rent per acre divided by the 10-year treasury rate. It's all about opportunity cost. Right now, the 10-year treasury is at or near all time lows. I think there's a better chance of interest rates increasing rather than decreasing. Thus, increase the denominator and obviously land prices will fall. Pressure on commodity prices will also decrease the numerator, which would also decrease farm land prices. Double trouble for farm land. Pretty simple math. As a disclaimer, this is just my opinion. You'll need to do your own research on farm land prices.


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