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Farmland Value Slide Continues
The farmland value slide is on.
The latest data from the Iowa Chapter of Realtors Land Institute, an industry group comprising farm real estate brokers, developers and managers, shows land in that state's fallen in value by 5.4% in the half-year from September 2013 to March 1, 2014. Coupled with the 1.2% gain in values statewide from March to September 2013, the latest data indicates a 4.2% drop in values in the last year.
"All 9 crop reporting districts showed decreases during the past 6 months," according to a report from Kyle Hansen with the Iowa Chapter of the Realtors Land Institute. "The districts varied from a 2.1% decrease in southwest Iowa to an 8.4% decrease in southeast Iowa."
The factors behind the slide are not surprising; grain market prices and input costs, for example, are moving in a bearish pattern for land prices. But, there are still reasons to be just bullish enough to keep the floor from falling out from under land values altogether, Hansen says.
"Factors contributing to the decrease in farmland values include lower commodity prices, higher input costs, increasing interest rates, government regulation uncertainty and uncertainty of the U.S. and world economy," he says. "Positive factors for farmland values include low interest rates, limited amount of land offered for sale, strong livestock market, renewed interest from investors, lack of stable alternative investments, cash on hand and fear of inflation."
What's this all mean for cash rents? At least on "professionally managed" land in Gary Schnitkey's state of Illinois, not much yet. Though values are down, rents -- like other key crop input variables -- are not falling in line just yet. The University of Illinois Extension economist says it will likely take corn prices "below $4.00 per bushel" to move cash rents lower in his state. Mid-$4.00 prices will cause "more modest decreases," though the real movement likely won't happen until next year.
"Because of these differences, a decrease in professionally managed farmland in 2014 does not indicate that the average cash rent on farmland will decrease in 2014. Because of lagged relationships between agricultural returns and cash rents, average cash rents may not decrease. In fact, it is possible that there will be modest increases in the average cash rents for 2014 released by the National Agricultural Statistical Service in September of this year," Schnitkey says. "Decreases in 2014 cash rents on professionally managed farmland result from much lower corn and soybean prices since the summer of 2013. If corn prices remain in the low $4 per bushel range, average cash rents may decrease in 2015. Even with projected 2014 cash rent decreases, cash rents on professionally managed farmland will have to decrease further to match agricultural return levels associated with lower commodity prices."
These latest farmland figures for a critical Corn Belt crop area come at a time when grain prices, though trending higher right now, are much closer to production breakevens. The longer those 2 numbers are close together, the more risk will build in the lending sector that's helping keep land values intact, farmers say.
"Unless there's some sort of production-cutting event for our own good, prices find a market value way below cost of production. There could be some very reasonable land out there. If you have 10,000-acre farmers going belly-up, who could or would step up?" says Agriculture.com Farm Business Talk veteran advisor BA Deere.
"There are always more willing farmers than acres to go around, but if grain would be below cost of production for an extended period, what lender would touch them?"