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Farmland Values To Slump More

The value of agricultural land, especially in the Midwest, is likely to continue falling in 2017, two experts told lenders attending the National Agricultural Bankers Conference in Indianapolis this week.

“2017 is going to look a lot like 2016,” said Jason Henderson, director of Purdue University’s Extension and former head of the Omaha branch of the Kansas City Federal Reserve Bank. Henderson looks for continued decline in land values of 5% to 10% next year, he said.

Rex Schrader, president of Schrader Real Estate and Auction Company in Columbia City, Indiana didn’t disagree, although he said some land sales this fall have brought more than expected. He agreed that land prices have been declining for the past two years, falling 10% to 15% in Indiana.

“I tend to think the land grant institutions here and in the Midwest are reflecting pretty closely with what we’re seeing,” Schrader said at the conference sponsored by the American Bankers Association.

While economists are comparing the current financial situation in agriculture to some aspects of the 1980s or 1970s, Schrader sees an important difference. During the 1970s, land prices were rising while farm income was falling, he said. Unlike the inflation-driven land bubble of that earlier era, the run-up in prices earlier in the current decade was tied to strong farm income.

“I think there was sound fundamentals for why land values got so high a couple years ago, he said. “I’m not smart enough to know how it all ends.”

Schrader said that a 20,000-acre farm his company sold in Nebraska brought more than expected.

“I can tell you, this fall has been strong,” he said.

Part of that strength may be driven by better-than-expected yields in some areas, both Henderson and Schrader said. And investors are showing more interest in land again.

There are exceptions to the overall downward trend in Midwest farmland values, too. Henderson said land near cities with development potential is one of those exceptions to declining prices.  Housing values are nearing the level they were at before the Great Recession. 

Poor quality land with hunting and recreation potential may also be recovering in prices as the economy strengthens, they said. But Schrader said that high quality farmland tends to hold its value best.

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