The U.S. Department of Agriculture predicted this week that net farm income will drop 27 percent this year. Michael Duffy, an economics professor at Iowa State University, "projects lower income for farmers could drive the price of farmland down 20 percent to 25 percent over the next several years," Newman writes. "Other observers point to factors that could cushion or reverse the market decline, including an unexpected resurgence in the price of corn and soybeans. Some buyers say they are waiting to pounce if prices fall, which also could help keep any decline from turning into a rout."
During the second half of 2013 farmland prices fell 3 percent in Iowa and 1 percent in Nebraska, according to the Farm Credit Services of America, a lender that calculates weighted averages based on land quality. A study by Omaha's Creighton University in January found the outlook for farmland and ranchland prices was the weakest in more than four years. "The shifts have forced farmers to recalculate the value of productive land," Newman writes. Greg Plunk, a third-generation Illinois farmer who added 80 acres to his farm over the past two years, told Newman, "Profits will be tighter, there's not going to be near the returns, and guys will have to be careful how much expenses they've got into an acre."
"Falling land prices could cause economic ripples, curbing farmers' ability to borrow money to buy new acreage, crop supplies or machinery," Newman writes. "Land secures many of those loans. Mark Jensen, chief risk officer at Farm Credit Services of America, said half of its $20 billion portfolio consists of real-estate loans secured by farmland. As credit quality deteriorates, farmers will use more land as collateral, he said. A pullback in farmers' spending could curtail construction of grain bins and livestock facilities as well as purchases of new machinery."
Some observers "point to factors that could cushion or reverse the market decline, including an unexpected resurgence in the price of corn and soybeans," Newman writes. "Some buyers say they are waiting to pounce if prices fall, which also could help keep any decline from turning into a rout. Greyson Colvin, managing partner at investment manager Colvin & Co., which owns about 7,000 acres of farmland, told Newman, "We think this next 12 months is going to be the best window we've had in the past five years" to invest in farmland." (Read more) (WSJ graphic)