Even when times are going well, it is always a good idea to be aware of potential warning signs. While current segments of the current farmland market are doing better (e.g. Class A Farmland) than others (e.g. Recreational Land), the market as a whole has fared better than other sectors of the real estate market. A recent article in Corn & Soybean Digest attempts to look into the future at where some problems could arise for the farmland real estate market. The article (The Three Bears of Land Values), identifies 3 potential weak spots that could negatively affect the market: 1) A multi-year decline in commodity prices that would leave farmers strapped for cash and unable to afford to add farmland to their current operation; 2) Should inflation increase, and the Fed increases the interest rates to combat this issue, the ability of the farmland buyer to borrow money would be greatly affected; 3) Potential changes to tax laws.
No one can accurately predict the exact future. Some, all, or none of the above factors may happen…or there may be some unforeseen issues that arise to impact farmland values. However, it is important to know what potential issues are out there that have the potential to devalue what is many investor’s largest asset.
What are your thoughts on the article? What problems do you see on the farmland market horizon? We want to hear from you!
Tags: agriculture, farmland, land market, land value, projection
