Farm land values continue slide
A decade-long trend in farm land values has reversed and is now trending the other way, with downward price pressures continuing to weigh on the market, specialists say.
Factors like a drop in the number of large capital expenditures and lower commodity prices have converged to cause a leveling-off or drop in farmland prices in states like Ohio, where values had been trending sharply higher until last year.
"Input costs are lagging commodity prices and both producers and landowners are now in a squeeze," says Ohio State University (OSU) Extension economist Barry Ward. "High commodity prices and relatively low input costs drove up profits in 2007 and 2008, but this year is not the case. We are unlikely to see those profit margins in 2009."
In this year's Ohio Cropland Values and Cash Rents Survey administered by Ohio State University Extension economists, surveyed farm managers, rural appraisers, Farm Service Agency personnel and OSU Extension educators, the state's cropland values are expected to decrease by 2.4%, while cash rents are seen "leveling off."
That downward trend has been seen in other Corn Belt states; According to Federal Reserve Bank of Chicago business economist David Oppendahl, Wisconsin was the only state in the region that did not see a year-over-year decline in farmland values. And, the end of the downward trend is not in sight.
"Few respondents expected farmland values to rise in the first quarter of 2009, but 35% expected them to fall in their respective areas," says Oppendahl. "Even though net farm income in 2008 set a record, net farm income at the end of the year had not risen as much as many had anticipated, and it looked ready to decline in 2009. These factors played a key role in slowing the growth of farmland values."
With the general economy's condition not expected to improve in the very near future, a clear on-farm spending trend is unfolding. Farmers are spending less, opting to cut costs where they can, Oppendahl says.
"In a reversal from a year ago, 2009 capital expenditures by farmers were predicted to fall from the levels of 2008, according to respondents," Oppendahl says. "Fifteen percent expected higher spending in 2009 on land purchases or improvements, while 44% expected lower spending. For buildings and facilities, 13% forecasted higher spending and 51% forecasted lower spending. These investments in the agricultural sector of the District were projected to be less in 2009 than in 2008."
If you're looking to back off your farm's expenses on land without losing acres, Ward suggests these other ways to "alleviate some of the financial pressures":
- Pay rents as they come due and cut back costs in other areas, such as new equipment or equipment upgrades.
- Work with the landowner to renegotiate the rent to a lower price for the remainder of the lease term.
- Work with the landowner to renegotiate to a flexible cash rental, where the rent "flexes" with the market. "This option gives producers some cushion if events or prices moved against them from the time the rent was negotiated initially," Ward says.