Farmland Prices – 5 Things to Watch in 2015

Dennis Badger, Vice President - Collateral Risk Management

I recently participated as a panelist at the July 2015 Purdue Top Farmer Conference. Looking at the Purdue land values survey and our Farm Credit Mid-America sales data, it was interesting to see that some regions maintained land value better than others, but the larger trend clearly shows that the boom in farmland prices, while not turning into a bust, has at least paused or is initiating a correction. What should farmers know about land prices? Here are five things to consider.

 

  1. Further declines in farmland are possible. Several things could pressure land prices. For example, land demand could decline if farmers reach a point where they’ve depleted their cash reserves, grain prices remain low and interest rates start rising.

 

  1. Changes in farmland prices and rental rates can lag declines in grain prices by several months or years, sometimes creating a margin squeeze.

 

  1. Even as land prices start declining, property tax rates may continue to escalate over the next two to five years, yet will vary based on local tax jurisdictions. This could make negotiations between landlords and tenants more difficult as landlords seek to hold onto their high rental rates.

 

  1. Farmers paying high rents can try to renegotiate with landlords, or choose to weather the storm and farm at a loss, at least for a while. As markets are unpredictable, all it might take is a drought and grain prices could quickly rebound and support land prices.

 

  1. Don’t try to time the market. Farmers should stay focused on what they do best – raising crops as profitably as possible. Farm Credit recommends buying land when the opportunity presents itself and when expected returns make sense for you and your balance sheet. Visit Purdue agricultural economists’ 2015 Purdue Crop Cost & Return Guide. It lays out expected returns per acre on low, average and high productivity soils at estimated March 2015 grain and input prices for corn, soybeans and wheat.

 

Should You Acquire Land or Let Some Land Go?

Large, nearby tracts of quality land don’t come up for sale or rent often, so the quality and location of land could make it worth paying a premium for you. Conversely, marginal-yielding or distant fields may not pencil out for you as they did when grain prices were higher. The question to ask is, will the land add enough to your production capacity to make it worth a premium price? We encourage you to work with your business or farm management team and ask questions to find your opportunity. The answer is different for every farmer.

Read more here and download the Farm Credit Mid-America Insights report.

For more information, visit www.e-farmcredit.com