Farmland values soared during the agricultural boom that began in 2006, fueled by high commodity prices and low interest rates that made it easier to buy land. Corn and soybean prices are down sharply from the records set in 2012 and interest rates are forecast to rise in the future. “(H)owever, that does not mean that farmland prices will decrease,” say economists Gary Schnitkey, Bruce Sherrick and Todd Kuethe of the University of Illinois. “We may enter a period of more stable farmland prices.”
Writing at farmdoc daily, they caution that “shocks to interest rate markets could result in farmland price decreases” and advise scrutiny of Federal Reserve action.
The economists say capitalization rates, which compare returns from farmland with other investments, indicate farmland is not over-valued. Land rental rates could drop by 13 percent before pulling the capitalized value of farmland below its current price, they say. Interest rates on Treasury bonds would have to rise just as steeply to begin to pull down land values, they calculated.
U.S. farm real estate, including land and buildings, is worth an average $2,950 an acre this year, up 8.1 percent from 2013, says USDA in an annual report on land values. The leading farm states have the highest values – $10,140 an acre in Calfornia, $8,750 in Iowa and $7,700 in Illinois, for example. The U.S. average rose by 37 percent, or $800 an acre, since 2010, when it was $2,150, says USDA.