Forecast: Land values down

October 7, 2016 09:51 AM

Dipping land values are part of an average market fluctuation

By Dennis Badger, Vice President – Collateral Risk Management | Farm Credit Mid-America

The USDA farm real estate report released in August indicated that many of the Midwestern corn and grain states continue to see significant agriculture property decreases, however land values in the mid-America region of Kentucky, Tennessee, Ohio and Indiana continue to remain consistent across the board. We believe our region continues to hold steady due to the diversity of the operations within the region. But, depending on your specific state, many farmers may be concerned about the current situation.

While land typically represents one of the largest fixed expenses for a farming operation, it also represents one of the largest asset categories on a farmer’s balance sheet and serves as a long-term investment. Long-term investments are intended to withstand market fluctuations like the region is currently experiencing. Current land values may be dipping slightly instead of increasing due to economic conditions, which shouldn’t be viewed as abnormal. Farmers should continue to monitor their bottom line carefully but know they can still move if an opportunity presents itself and if they are in a good financial position.

Since land values are expected to decrease slightly in the next year but interest rates are expected to rise, now is the time negotiate cash rent or make an investment. A good rule of thumb during an economic downturn is this: If the investment looks solid despite current conditions, it will probably be a good long-term move. Quality land generally holds its value better than marginal land and tracts improved with irrigation and drainage systems appear are desirable features to most purchasers. Overall, farmers should be cautious but still consider and weigh opportunities as they come up.

Farm Credit is committed to being a reliable source of credit for customers in any economy. We encourage you to always make borrowing and buying decisions based not only on opportunities but also business needs.

For additional financial tips, insights and perspectives, visit Farm Credit Mid-America Insights.

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