Farmland prices still up but for how long?
© Copyright Agri-Pulse Communications, Inc.
WASHINGTON, Jan. 15, 2014 - Farmland sales continue to climb, according to data released by national real estate and management firm Farmers National Company. The company says it made $750 million worth of sales in 2013, compared to $640 million in 2012.
But with a softening commodities market - cash corn prices in the current marketing year will be down 36 percent from the previous, USDA forecast in a report last week - can climbing land prices continue to break records?
Farms continue to be profitable “despite lower commodity prices…due to reductions in fertilizer expenses of nearly 30 percent,” said Randy Dickhut, vice president of real estate operations at Farmers National. “This is prompting farm owners to continue buying premium land to expand their operations.”
In Iowa, the firm found, the average price of high quality farmland in 2013 was $12,000 per acre - the same as the previous year.
Though economists at Purdue University predict fertilizer prices will remain low, some experts say that won't be enough keep land values afloat should commodities continue their downward spiral.
Low interest rates have also slowed down price increases, though the outlook for those financial instruments may soon change. In a biannual Kansas State Agricultural Lender Survey in November, lending institutions indicated interest rates will increase in both the short and long term.
The lenders also said they expected land values to continue to increase for the next year - but ultimately fall between 2015 and 2017.
Producers also seem wary of rising land prices. In the annual Iowa Land Survey conducted by Iowa State University Extension in November, economist Michael Duffy found producers reporting record land values. But he also found the majority of them believe commodity prices are negatively affecting farm prices.
Land values, Duffy said, remained high for 2013 on the whole because the beginning of the year was so bullish. That compensated for dropping commodity prices in the second half of the year.
“I think that, as you look, land values basically were up the most in the beginning of the year and then they followed crop prices throughout the year. As crop prices around June, July started their downward trend, that's pretty much when the land values did,” Duffy said.
The survey also found that Iowa producers believe uncertainty and government programs are hurting land prices. In other words, land values are pressured by “generally the fact that we don't have a farm bill, and don't know the direction things are going to be going,” Duffy said.
For more news, visit www.agri-pulse.com.