Have farmland values seen their top?
Corn and soybeans aren't worth as much as they were a year ago. That's got some farmers staring down the barrel of a breakeven price for corn and soybeans that may not be attainable based on current prices for the crops and the inputs it will take to raise them. And much of the expense side of the equation adding up to that necessary price comprises farmland.
Ask a lot of farmers about the prospect of lower land costs in the coming year or so and many see that as an almost laughable scenario. Land prices simply haven't fallen even though current levels make it tough to yield a profit on corn and soybean acres. In other words, $4.25 casn corn and $300/acre land rent don't mix very well.
"Ha! They should go down, but will they? I don't think so," says William Bruere, who with his family operates Bruere Farms near Prole, Iowa.
"Despite lower farm income and expectations of additional declines, farmland values surged further during the second quarter. Irrigated cropland values in the District jumped 25% from a year ago. Nonirrigated cropland values advanced 18% from the previous year, a slightly slower pace of growth than in the first quarter," says Nathan Kauffman, economist with the Federal Reserve Bank of Kansas City in a report released this week.
But, farmers say lower grain prices make up just one piece of the land price crunch. One other element lies outside the farm sector; as long as investors have reason to remain anxious about the general equities market, it's enough to keep capital streaming into land.
"Crop prices are not the only thing supporting land values, but is one of them. Cheap money in the form of low interest is another," says Agriculture.com Farm Business Talk veteran advisor sw363535. "Federal borrowing and dumping of cash into the economy has helped the stock market values as much as grains prices.
"If land prices do not come back down with the grain prices, it is not a good omen for the rest of the economy. Some of the Value of farm land has been fear-driven...or at least lack-of-faith driven."
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- Also: Crop budgets may signal lower land rents
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This movement in land comes despite widely documented lower farm incomes based on lower grain prices that Kauffman says have driven higher farm loan volume in recent months.