Tuesday, June 18, 2013

Farmland prices are declining in two key states, but don't seem to be heading for a collapse

After years of growth, farmland prices appear to have hit a peak, and could be heading for a decline, but not a bust, according to economists and farm realtors. "It's not a collapse, it's just a maturing," Purdue University economist Chris Hurt told attendees during a recent online webinar, reports Marcia Zarley Taylor of DTN The Progressive Farmer. "In other boom-bust cycles we've seen a demand collapse. We're not talking about that now, and that's giving us the prospect of a soft landing."

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Since 2007, Iowa has had four years of 20 percent to 30 percent land appreciation, but could be 10 percent this year, Taylor reports. In Indiana (right), a typical corn-soybean operator made profits of $357 an acre in 2011, but that number is expected to drop to $267 this year, the sort of drop that depresses land prices. Hurt says the main reasons are that "big growth in ethanol is flattening out, China's appetite for U.S. soybeans is waning as South Americans expand acreage, and the value of the dollar is suddenly gaining steam, making exports more expensive overseas."

Another factor is declining interest rates, writes Taylor. "If 10-year Treasuries inch up from an average of 2.9 percent in 2013 to 3.65 percent in 2016, Hurt estimates Indiana land values could slide about $1,000 an acre. That's from a starting point of about $7,313 at mid-year 2013." (Read more)

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