(Des Moines) The value of crops fell last year as corn and soybean prices declined from record highs the previous year. The U.S. Department of Agriculture says an annual report value of 2013 field crops fell 9.8 percent to nearly $167 billion to $185 billion in 2012. The question is what effect will lower commodity prices have on farmland values.
“Most economists are forecasting land values to decline about 15-20-percent over the next two-to-three years,” stated Rod Hartwig, of Atlantic, and Financial Officer of Farm Credit Services of America. “When we look at the trends with the benchmarks, the last five years has shown about a 98.5-percent increase in value, last year a 3.4-percent increase, and this year we are seeing a 2.8-percent decline in farmland prices. So we are definitely seeing a softening in the farmland market…but a soft landing.”
Hartwig says right now there is a big pile of corn out there and all indications are that we will have a bigger pile of corn next fall.
“I think a lot of buyers are in a holding pattern right now because they want to see what the price of corn is going to do, and the other variable is interest rates” Hartwig said. “I am hearing from a lot of economists that corn could drop to $3.50 next year and those are the things that people are looking at.”
But the good news is that most farmers’ have a lot of working capital.
“We have some very good producers out there with very good working capital. And even if land values drop 20-percent we will not experience any like we did in the 1980’s when farmers had to sell their land to pay their bills,” said Hartwig.
Hartwig noted that farmland values remain pretty strong in the northern region. For instance last weekend a farm sold for $182.00 per CSR which is still very strong. Hartwig admits the farther south you go the softer the prices. The land to the north is higher because of the stronger corn suitability ratings.
Another factor supporting the market is the fact that there is less farmland for sale and continued demand. Case in point, Hartwig says the number of transactions analyzed by Farm Credit was down from 5,256 in 2012 to 3,582 in 2013 so there is definitely a decrease in land for sale.
And farmers are being a lot more selective.
“The land needs to be right next to them or in their area,” explained Hartwig. There aren’t too many buyers going across or to another county to buy farmland.”
February 19, 2014