Farm values to fall with cash receipts: MetLife

Lower commodity prices could cause US farmland values to fall by as much as 20 percent by 2018, but the decline will not compare with the crisis of the 1980s, according to a new report from MetLife Agricultural Finance.

The group anticipates farmland value declines in the Upper Plains (26 percent), Midwest (22 percent), Mountain (21 percent), West (18 percent) and Southeast (6 percent), with lower declines in the latter two regions due to resilient specialty crops and poultry revenues.

Falling regional cash receipts will be the primary drivers behind the value declines (see charts below), expected to continue declining then bottom out in the coming years following record annualized growth of $14 per-acre between 2010-2014 versus a long-term average of just $3.

The 20 percent average decline would represent the first significant correction in US farmland prices since the mid-1980s, when interest rates reached record highs due to the adoption of “restrictive monetary policy designed to combat inflation”, raising operating expenses and reducing farmland values.

But the latest correction will be milder “as a result of low interest rates, low leverage, and solid commodity demand”. This time around long-term fundamentals remain positive “due to growing worldwide demand for agricultural commodities”, and by 2020 researchers believe US farmland values will rebound by 6 percent.

“We do not believe the correction in farmland values will lead to a crisis like that of the 1980s”, researchers wrote. “The crisis in the 1980s was a product of policies that incentivised the sector to take on excessive leverage and an abrupt change in monetary policy that caused interest rates to rise. This is not the case today.”

In addition, today’s agricultural sector benefits from mandated corn demand through the Renewable Fuel Standard (RFS), resulting in higher prices for agricultural commodities and strong support for farmland values.