Wednesday, August 10, 2016

"US land prices 'to extend decline into 2017'"

From Agrimoney:

US farmland prices will extend their decline into 2017 – but the extent of the drop will depend on enthusiasm for raising interest rates, the University of Illinois said, after official data showed the first drop in values for seven years.
Gary Schnitkey, at the department's agricultural and consumer economics department, flagged a "continued need" to cut land rents, potentially at an accelerating pace, to keep farmers in the black at a time of weak crop values.
"Recent declines in commodity prices lead to low revenues projections for both 2016 and 2017, further aggravating the need to reduce costs," Professor Schnitkey said.
Basing his research on the Illinois land market, he said that falls in cash rents "must be larger than" the $12-per-acre drops seen during the last two years if farmers' costs "are to be below revenue", even taking into account "some progress" made in cutting spending on inputs such as fertilizer.
'Values should be expected to decrease'
The correlation between land values and rental rates, which have showed "similar trends", suggests further pressure on farm prices – unless there is a rebound in crop values.
"Given reduced cash rents in the future, farmland values should be expected to decrease.
"Given current levels of commodity prices, one should expect continued decreases in cash rents and land values into 2017."...MORE
As we've been saying for years, most recently in February's "USDA Chief Economist Makes A Case For Farmland ":
It's too early.
Even though we think we'll see some upward price pressure come late summer, after a meandering downtrend, the reality of farmland investment is that it is only worth a multiple of the cash flow.
(unless you're on the edge of a metro area and have some non-public zoning info)