Farmland Values Under Pressure

Farmland Values Under Pressure

Non-irrigated crop ground could see 10% to 20% drop in some regions

For the past few years, the farmland market has been on a steep incline. Landowners have enjoyed the view from the top of the roller coaster as their equity ballooned. But, what goes up must come down. All signs now point to softening farmland values, but how fast and deep will they plunge?

“I think we have seen a peak for the time being,” says Michael Duffy, director of the Iowa Land Value Survey and former Iowa State University economist. “Commodity prices and farm income are settling back to more expected levels, and I think land values will probably move sideways for a while.”

USDA projects net farm income will decline by 32% in 2015, which is the lowest since 2009. This drop in 
income is due to the third straight year of declining profitability (cash receipts) for crops.

Looking forward, bankers in the Tenth Federal Reserve district (Colorado, Kansas, Nebraska, Oklahoma, Wyoming, northern New Mexico and western Missouri) are concerned tighter profit margins, higher debt levels and a decline in cropland values might adversely affect farm loan performance in 2015. Most of the district’s bankers expect cropland values to decline this year—a drop of 10% to 20% for non-irrigated cropland, says Nathan Kauffman, assistant vice president of the Federal Reserve Bank of Kansas City. 

Due to smaller profits, less land has changed hands in the past year, says Mike Morris, 1st Farm Credit Services chief appraiser. “We’re seeing a softening market, but no significant slide,” he explains. “If there were a large supply of land on the market, it would likely depress land values further.”

Profitability in the cattle industry is increasing demand for ranch- and pastureland. USDA projects cattle receipts to reach a record high in 2015. “Yet the farm sector should be cautious about possible further impacts of these price trends, especially because feed costs may not get much lower,” says David Oppedahl, Federal Reserve Bank of Chicago senior business economist. 

“Nevertheless, agricultural credit conditions indicated only modest stress, and the vast majority of farm operations are expected to have no trouble qualifying for operating credit in 2015,” he adds.

As a result, large numbers of forced sales of farmland are unlikely to occur in 2015. “By avoiding such a scenario, farmland values should simply drift lower over the coming months,” Oppedahl says. 

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