Research & Data

FAPRI projects 10% farmland value decline by 2020

While the report takes a wide view of the agricultural economy, regional trends in farmland prices could be more telling in terms of identifying opportunities for private investors.

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Old farmhouse, beautiful fields and sea on island Als in Southern Jutland Denmark. From same place:

A more than 10 percent drop in farmland values is likely before the end of the decade, which could present regional opportunities for private investors, according to the author of a recent report from the University of Missouri Food and Agricultural Policy Research Institute (FAPRI).

In its annual US Baseline Briefing Book examining agricultural trends, released Monday, FAPRI wrote that the fourth consecutive year of declines in net farm income this year will contribute to a 11 percent decline in US farmland values, or $339 per acre, by 2020.

The report’s author, Pat Westhoff, told Agri Investor that the projected decline in values is based on statistics from the USDA National Agricultural Statistics Service’s annual land value survey and FAPRI projections of rental and interest rates.

But while the report takes a wide view of the agricultural economy, Westhoff said that regional trends could be more telling in terms of identifying opportunities for private investors.

“It’s amazing how much these markets vary across regions of the country, across even quality of land within a region,” Westhoff said. “There may be regions where the top-quality land is undervalued or where the low-quality land is overervalued. Therefore, even though there are some headwinds in front of us, there still may be some opportunities.”

The report’s price outlook takes into account rising interest rates and increased indebtedness of US farmers. It states that the debt to asset ratio for US farmers is expected to increase from 11 percent in 2012 to 14 percent this year and 16 percent by 2026.

Despite this, Bruce Sherrick, a professor with the University of Illinois TIAA Center for Farmland Research, told Agri Investor that the projection of a more than 10 percent decline in farmland values before 2020 seems “fairly pessimistic.”

The forward projection may not sufficiently take into account the supportive role of crop insurance policies, longer-term trends in farmers’ income and debt positions and recent land sales indicating a firming of the market in some key regions, he argued.

“Forecasts are hard, especially about the future” he said, quoting Yogi Berra. “This could happen, but it doesn’t feel like the sky is falling.”