What is in this article?:
- Looming interest rate hikes greatest threat to farmland values
- Corn led the ramp-up
• 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.
Corn led the ramp-up
Corn led the ramp-up in commodity prices and the associated increase in ag land values. As such, if corn were to fall below $4.50 per bushel for an extended period of time, a significant decrease in land values could follow.
Vernon Crowder, senior analyst with FAR, co-authored the report and notes that in the Western U.S. agricultural land values are expected to move in the same direction as those in the Midwest.
“The changes seen in land values in the West, especially those in California, should be less dramatic than that of the rest of the country,” said Crowder. “This is due in large part to the diversity of crops grown in the region.”
Orchards, vineyards and irrigated land in the Western U.S. have seen extreme increases in land values due to strong market prices and growing export demand. Interest rates will be the primary determinant of any decline in the value of farmland, but the strength of the U.S. dollar is also important due to the rate of exportation for many commodities produced in the Western U.S. A stronger U.S. dollar will negatively impact exports.
The Southeast U.S. has seen a modest appreciation of irrigated cropland, as it weathered a severe drought. Florida in particular is in the midst of a difficult era, due in part to weather, disease, increased competition from imports and influence of the struggling housing market leading to a lack of appreciation of farmland value.
Expected increases in interest rates and declines in major cash commodities will lead to a difficult medium-term, especially if commodity price declines lead to a reduction in land rents.
The full report explores the drivers behind the increase in ag land values, factors responsible for determining interest rate increases and regional variations. The full report is available exclusively to clients of Rabobank, Rabobank, N.A. and Rabo AgriFinance.
For additional information, visit http://www.rabobankamerica.com.