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More signs of land price leveling

A report to be released next week on land prices will mirror a leveling off shown this week by an Illinois study.

Rabobank will release its own report, which, like the Illinois survey, will show that land prices this year are up by about 2% to 3% over a year ago, said Sterling Liddell, an economist and vice president for the agricultural lender. A survey by the University of Illinois and Illinois society of Professional Farm Managers shows the first half of 2013 with a 2.5% to 3% year-over-year increase for good to excellent land in that state.

"That is consistent with what we're seeing as well, from both the opinion perspective as well as appraisals," Liddell told in a telephone interview Friday.

Bank analysts were expecting that to happen last year as well, he said. And good farmland prices were rising at about a 2% to 3% rate until the last quarter of 2012, when concerns by both sellers and buyers over looming federal tax changes added incentives to pay more for land. Sellers wanted to avoid increases in capital gains taxes.

Liddell won't be surprised if the trend continues into 2014.

"If we get lower prices on this crop, then we expect to see a leveling off into next year as well," he said.

Prices could actually decline if corn averages less than $4.50 a bushel, he said.

Another big factor will be higher interest rates, which will make purchasing land more expensive and also will likely strengthen the U.S. dollar, potentially making U.S. crop exports less competitive against those of Brazil and other competing nations. That would put downward pressure on U.S. crop prices.

"If we have strong increases in interest rates, it will have a very negative effect on land values," Liddell said.

That applies mainly to new sales, but a significant percentage of recent land purchases are still financed by floating rate mortgages.

Liddell didn't want to generalize about all farmland loans or disclose Rabobank's statistics on the amount of farmland mortgages that don't have fixed rates locked in. It's less than a majority, he said. "There are more than would make me comfortable," he said.

Mortgages with floating rates have been less costly, but when the Federal Reserve ends its quantitative easing program to hold down long-term rates, that isn't likely to continue.

"That's something I would recommend, that farmers look at: How do they extend these low rates?" Liddell said.

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