Minding Ag's Business
|A 20% to 25% Land Crash?|
Marcia, in your June Businesslink column in "The Progressive Farmer" magazine, you quote a Farm Credit Administration economist saying, "We’re expecting a land value correction of 20% to 25%" over the next few years. What can make this happen? The price of the crop does not have the bearing as in the past. The price of land here has not stopped going up. --Cal
Cal, I can’t speak for the Farm Credit Administration’s rationale, but in general most economists say what buyers pay for land is based on future income prospects. In the long-run, that means land values mirror farm income and/or the potential rents landowners think they can charge. (Interest rates also affect affordability of land, but not as much as farm profits).
The problem is most of the “official” 10-year estimates of commodity prices from USDA and the University of Missouri’s FAPRI, for example, have corn averaging about $4 over the next decade, not the $6 to $7 cash corn growers averaged in 2012, so I think FCA is assuming future farm incomes won’t be as robust the next 5-10 years as they were in the last decade. There’s always a lag though, as in the 1980s when farm incomes fell first but the price of land didn’t bottom for five or six years.