I consider myself lucky… everyday I have the opportunity to talk with many farmland stakeholders – from farmers to absentee landowners; ag economists to agri-businessmen; and from lenders to the media. This often allows me to know what is happening (or is going to happen) in the marketplace before anyone else. Lately, I have detected even more pessimism regarding the direction that land prices may be heading. This reaction can be expected from anyone who follows grain prices – farmers just won’t have enough net income to pay for a major capital purchase like land.
Having accepted the idea that land values may move lower, the follow-up concern for many buyers (and especially sellers) now appears to be – “How much lower can prices go?” A recent article on agweb.com (Land Values Could Decline by 30% or More) discusses this issue using an internal study of AgriBank, one of the largest banks in the Farm Credit System. In their analysis, based upon the current outlook for commodity prices and interest rates, the lender estimated that land values could plummet as much as 30 – 34% across parts of the Cornbelt. The AgriBank land model leans heavily on the change in net farm income, and in their worst case scenario a 50% decrease in net income will lead to a 33% decline in farm land values. While a decline of this magnitude is possible, they don’t necessarily see it happening all at once – in their projections it may take 4 years to materialize. Despite all the doom and gloom, the Bank does try to keep things in perspective… a 33% decrease in land prices would still be less than the price appreciation that most states have seen the past two years.
In my opinion, the people who should be the most nervous about this issue are those who are considering a sale in the next 12 – 18 months. The risk for these sellers could be high if they reject a good offer now (even if it is less than what someone would have paid a year ago) and then the market continues to trend lower for the next several years. In this situation, it may be important to remember a paraphrased version of an old saying… “a good offer in the hand today may be worth more than any hoped for offers in the future.”