ST. LOUIS, Sept. 19, 2013 —The era of extremely low interest rates and extraordinarily high commodity prices is drawing to a close, according to a new report from the Rabobank Food & Agribusiness (FAR) Research and Advisory group. As this trend nears an end, the prices of U.S. land values will level.
“We’ll likely see lower commodity prices this year, but they aren’t going to be low enough long enough to substantially impact land values over the coming year or so,” says report author and Rabobank Food & Agribusiness Research and Advisory (FAR) senior analyst, Sterling Liddell. “In the short term, strong farmer balance sheets and high rental rates will support current levels. However decreasing commodity prices will keep the values from accelerating as rapidly as they have been.”
The report, “Land Values Peaking Out—But Not Down,” finds in the medium term, the single greatest risk to U.S. agricultural land values is looming higher interest rates. Interest rates have been increasing through the first half of 2013, but based on the current Federal Reserve policy, a significant increase isn’t expected until 2014 or 2015.
“We are entering an era where planning how you’re going to pay for your land is likely to become as important as planning for marketing your crop,” notes Liddell.
The report forecast finds a decline in land values in the central U.S. of 15 to 20 percent over the next three years. In the Western and Southeast U.S., the decline will be less marked than in the Midwest.
Corn was the leader in the commodity price boom, so as land values decrease in the Midwest, there is likely to be a general decrease across the Central U.S. as far south as Louisiana, the report explains.
Rabobank also notes that while an increase in interest rates will have a similar impact on agricultural land values throughout the country, the amount of change will depend on the type of crop production and proximity to urban areas.
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