Weaker Farmland Prices But No 1980s-style Collapse

Published on: 19:43PM Oct 21, 2015

That's the view of three University of Illinois ag economists as they analyze current farmland prices, cash rents and capitalization rates. Gary Schnitkey, Bruce Sherrick and Todd Kuethe say in their review: "While headwinds related to farm income will likely continue, current farmland prices do not appear out of line with current cash rent and interest rate levels. That is, farmland price bubbles or conditions that would be seen as such are not evident in the current market. If large farmland price decreases do occur in the near future, it is likely that they would be associated with unexpected interest rate increases or additional shocks to expected future agricultural income"

Key for their analysis is farmland's current capitalization rate. Using state average cash rent and farmland price levels as reported by USDA's NASS, they find the average value of farmland is below its capitalized value. While that could change if interest rates surge suddenly, they write: " it is not evident that interest rates will rise in the near term. The Fed continues to discuss ending low interest rate policies, but continues to push the ending of those policies into the future. Moreover, interest rates near the middle of the yield curve may not rise at the same rate as short-term rates as the Fed begins to implement policies to raise short-term interest rates."

Click here for their full analysis.

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