The News & What it Means – Sagging US Farmland Values No Surprise

By John DePutter & Dave Milne – October 24, 2017

 

The news:

US land prices fall as weak crop prices sap farm incomes: A farmland price index compiled by Creighton University indicates an unbroken run of price declines stretching back to December 2013.

– Agrimoney, Oct. 23, 2017.

 

What it means:

It’s no big surprise to see US land remains under pressure.

 

After all, crop prices have been stuck in low-level trading ranges for the better part of three years.

 

One thing the US experience means to Canadians is that land values do go down as well as up. On this side of the border, very few areas, if any, have witnessed land price declines similar to those in the US, and there are some Canadians who cannot imagine land values ever going down, even for a year or two.

 

But if prices can slip in the US Midwest for three to four years, who knows? Maybe they could do something similar this side of the border someday too.

 

The pressure on US land comes largely as a result of low corn prices. Land and rent prices have been slipping ever since the commodity boom of 2012 went bust, taking the price of that major Midwest crop down sharply from its record high, to below production costs for some US farmers.

 

Wheat and soybeans, two other mainstay crops, are also trading far below their boom peak levels, and in some cases are also below production costs.

 

Although farmland values have levelled out in many areas of the US the past year, this recent survey implies the decline has not clearly reversed.

 

The land price pressure means a lot of US farmers are losing equity. What’s more, lots of land in Midwest rural area is owned by landowners who rent or share crop, meaning the softening of values results in lower rental rates and a declining return on investment.

 

The Creighton land price index was reported at 39.3 points for October, down a modest 0.3 points from last month, but well below the 50.0 level that indicates a neutral market.

 

Corn below production costs

US corn futures of around US$3.50-3.75/bu represents a range that does not cover costs for 45% of growers who rent land, the Omaha-based university survey showed. Only 2.4% of growers could achieve profits at that price level.

 

And given that many growers receive prices below futures – cash corn prices as monitored by Reuters ranged on Friday from a discount to December futures of 8 cents/bu in Union City, Indiana to 45 cents in Lincoln Nebraska – profitability prospects may be even worse, the news report said.

 

Action Plan:

DePutter Market Advisory Service readers receive periodic commentaries on agricultural economic conditions and factors that go into land prices, for Western Canada. The Ag-Alert service offers comments on conditions for Ontario.
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