Farmland Values and Cash Rents: Declining Profits Point to Further Reductions

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by Brent Gloy

As we discussed in these May posts (1, 2) most indications are that prices for U.S. row crop farmland are now softening, bringing an end to a tremendous run of increases for farmland values. We thought it would be useful to take a look at how far farmland values have come and some different measures of farmland valuation in order to gain  insights into where prices might be headed. Continue reading

Changing Economic Fundamentals Put Pressure on Farmland Values

by Brent Gloy

In our last post we examined some of the trends in farmland values around the country. These trends indicated that farmland prices were likely heading lower in many regions of the country. This is likely the most true in the Corn Belt where grain prices have been under substantial pressure. The output price pressure has been met with stiff resistance in input prices creating a significant margin squeeze. One way that this squeeze may alleviate is with a reduction in fixed costs, most notably cash rents and farmland prices.  Indeed, recent survey results from Iowa State indicate this process is underway.  Continue reading

The Next Threat to Farmland Values

By

Brent A. Gloy

With commodity prices tumbling one of the key supports for sky high farmland values is changing rapidly. As economic returns in the farm sector fall, we should expect that the other key driver of high farmland prices, low interest rates, will come into much greater focus. Even with elevated profitability of recent years, capitalization rates on farmland have steadily drifted lower, meaning that the ratio of current income to farmland prices has fallen. In other words, farmland prices have grown more rapidly than current income. While this has made sense in a growing income and falling interest rate environment, this trend may be approaching its limit.   Continue reading