Aug 19

Overheated or Smart Buy? Farm Values Surge

Overheated or Smart Buy? Farm Values Surge

Overheated or Smart Buy? Farm Values Surge. Image courtesy of xedos4 / FreeDigitalPhotos.net

Overheated or Smart Buy? Farm Values Surge. Image courtesy of xedos4 / FreeDigitalPhotos.net

Some analysts are concerned that farmland prices are headed for a serious drop in value. Then again, as other analysts note, that’s a concern that has been shared for years that has yet to show any signs of coming to fruition.

After the 2008 financial collapse, farmland was one area of real estate that actually shot up. Farmland prices surged, mostly attributed to a rise in commodity prices, low interest rates, and high auction prices that drove up values. For example: In Illinois, the value of land has risen 207 percent since the year 2000.

But in the past year, commodity prices have dropped, prompting some to question whether or not farmland values will soon follow. As of yet, they haven’t. In fact, the value of land for row crops has continued to increase.

“We’re kind of at an inflection point,” Brent Gloy, a professor of agricultural economics at Purdue University, told The New York Times. “We’ve had five years of spectacular profitability that was somewhat unanticipated. The USDA was forecasting much lower than this, so it surprised people.”

“In real terms the gain[s] we’ve seen in farmland values over the last 10 years are greater than those we saw in the 1970s,” notes Gloy. “In the early 1980s, farmland prices crashed when interest rates went up and farmers could not continue to borrow to finance their operations.”

But farmland may have a lasting demand and inherent value. Changing demographics will prompt more farmers to sell or lease their land as they age, according to a report released by U.S. Trust.

“Can land go up and down? Sure. But I’ve never seen land go to zero. And with world demand, there is no vacancy factor on good U.S. farmland,” says John Taylor, national farm executive for U.S. Trust, which manages 900 farms for investors.

Source: “Despite Drop in Commodity Prices, Farmland Values Rise,” The New York Times (Aug. 16, 2013)

 

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