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Land values not sinking soon, farmers say

There's been a lot of speculation about whether this year's drought and its effects on crop yields and farm incomes will reverse the skyrocketing trend of farmland values. Now as harvest races along and the markets continue to gyrate to the rhythm of every report on crop production, supplies and demand, farmers are split on whether or not current conditions will yield lower land values down the road.

To date, land values generally haven't seen a complete reversal to lower prices; but, reports have shown in the last few weeks that there has been a slowing in the upward climb of both land prices and rental rates.

"Drought became the biggest storyline over the summer for Midwest agriculture, and indeed, it contributed to less rapid increases in farmland values during the second quarter of 2012," Federal Reserve Bank of Chicago business economist David Oppendahl said in the Chicago Fed's latest analysis of land values and ag credit conditions earlier this fall. "Responding bankers predicted that as the drought continues to spread across much of the District during the third quarter, farmland values would likely level off but not face much downward pressure from the drought's effects. With over 70% of the respondents expecting stable agricultural land values for the third quarter of 2012, the consensus was for farmland markets to move sideways."

So, is this movement the first step in a slide? Most say values won't move much; 50% responding to a recent poll said 3 months from now, land values will be in the same range they're in now, while 32% say they'll be higher. Another 17% say they'll be lower than today. Some say the market's variables -- namely short corn and soybean crops and the prospects for lower-than-expected crop incomes -- are lining up for the latter scenario.

"Land is topping out. Most markets don't stay flat for very long. I don't think the banks are going to be crazy about lending more money out with no farm bill and with half a crop of corn," says Marketing Talk senior contributor highyields. "I'm not sure how flush guys will be with money. Crop insurance just keeps you alive."

The majority say though farm incomes may not break the bank this year, it won't lead to a wholesale decline in land values. "Land might not have double-digit gains annually from here on out, but it won't go down either," says Marketing Talk advisor BA Deere. "Hang on to land, it eventually goes up."

So, why are so many more farmers confident the land market's going to stay strong? One word: Cash.

"Cash is the difference compared to the past. Today, it is all about cash purchases or a healthy down payment. Prices may level off, but there should not be the forced sales we saw in the 80s," says Marketing Talk senior reader bigrock4076903. "These numbers support continued strength. with historically low supplies on hand, there should not be a massive swing the other way."



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