Mike Walsten: Land’s Security in Troubled Times

08:00AM Apr 03, 2020
Midwest farmland
In the midst of the many uncertainties and tragedies due to the spreading COVID-19, the security offered by land ownership again shines through.
( AgWeb )

In the midst of the many uncertainties and tragedies due to the spreading COVID-19, the security offered by land ownership again shines through.

Lest this sound insensitive, please know we are deeply saddened by those who have lost their lives or whose health has been severely harmed by this highly contagious virus. We are also highly concerned for those whose livelihoods have been negatively impacted by the widespread economic disruption caused by the battle to control the virus. This is the focus of our thoughts and prayers during these troubled times. 

People naturally seek security in times like these. The quick evaporation of net worth in the stock market meltdown makes the basically stable farmland market look very attractive. Especially when you consider you know where your wealth lies when you hold title to farm ground. You can see it. You can walk on it. You can harvest food from it. You can live on it. These are all comforting in times of trouble. 

Of course, we recognize that while farmland values are relatively stable now, they are down 15% to 20%, depending on location, from their peak in 2013. That’s the decline over a period of five to seven years — tough to experience but spread over a long period of time. That spread offers some relief by giving people time to adjust, react and respond, if necessary. 

The kind of stock market collapse seen this month offers no time to respond at all. It’s like a large stampede of people trying to escape the Superdome through a single, narrow door. Getting out of the huge arena is nearly impossible without a lot of people getting hurt. That’s no way to inspire confidence and cooperation in a market. 

What’s ahead for land prices?

No one really knows, of course. But a few trends stand out. The yield on the 10- year Treasury has plunged under 1%. The Federal Reserve has flushed the system with liquidity and promises to back money markets to provide liquidity for investors and institutions. The federal government will send checks to individuals and families and back loans to businesses 

This means interest rates will likely remain quite low for quite some time. Low interest rates tend to be supportive of farmland values. In addition, low cap rates resulting from low interest rates also are supportive of farmland values. In addition, the current relatively stable nature of the farmland market is a positive as low volatility is usually supportive of future farmland values. 

While inflation is likely to remain very low in the coming months and years as a follow-on to the financial crisis of 2008-09 and now COVID-19, all that money printed by the federal government points to a eventual reckoning with inflation. While well in the future, farmland is usually an excellent hedge against runaway inflation, as well.

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