Farmland is the latest commodity to turn to the dark side. The Federal Reserve Bank of Chicago reports that farmland in its Upper Midwest region fell 6% in the first quarter of 2009, the largest quarterly decline since 1985.
Other Federal Reserve Bank and university studies also show farmland steady to lower. Both the ag economy and general economy played a role. "Net farm income at the end of last year had not risen as much as many had anticipated and it looked ready to decline in 2009," says David Oppedahl, an economist with the Chicago Fed. "That played a key role in slowing the growth of farmland values. In addition, demand for recreational land and acreages for rural housing eased off because of the current recession."
No Collapse. Bruce Johnson, an ag economist at the University of Nebraska, doesn't expect a downward spiral, however. "It's more likely a modest recalibration of value," he says.
Johnson says most recent buyers are active farmers looking to expand. Nonfarm investors are still in the market but were not big players last year, and "interest in ag land for recreational purposes has dried up."
Although ag credit requirements have tightened, USDA points out that the ag sector has had a falling debt-to-asset ratio and is in generally good financial condition. As a result, it does not expect a return to the 1980s debacle.
Johnson says an old economic truth is still valid: "Productive ag land is a positive store of value.
In times such as these, when other aspects of wealth portfolios are rapidly shrinking, that statement rings more true than ever."
Producers Seek Opportunities
Based on a Top Producer survey in mid-July, most producers expect land prices to remain level or fall in the next six months (see chart). Thirty-one percent say they want to buy more land in the next year and another 11% say they weren't planning to buy land, but with weaker prices, they are looking for opportunities. Twenty-one percent bought land in the past year. Three percent who planned to sell land now are waiting until prices firm up again.
Top Producer, Summer 2009