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Market unconcerned about falling US land prices

Land prices across the US Corn Belt could fall by as much as 10% a year for three years, but this does not reflect badly on the investment opportunity, argue managers and consultants.

A pullback in farmland values across the Corn Belt region has hit the headlines in recent weeks as academics and local governments predict an end to the decade-long increase in farmland prices.

Purdue University’s Centre for Commercial Agriculture predicts that the decline in values will be protracted over a three-year period and result in a 5 percent to 10 percent a year correction. And the Chicago Fed reported a 2 percent year-on-year fall in values earlier this month.

The land value rally was due in part to strong export markets for crop commodities, increased production of corn-based ethanol and the resulting high crop prices but today’s falling crop prices and expected interest rate hikes are set to contribute to falling values, according to Purdue.

While this might sound like bad news for the investment community, it actually presents appealing buying opportunities, according to managers and consultants.

“If we do see both land prices fall and the supply of land increase, then many institutions interested in investing in US agriculture may see this as a buying opportunity,” argued Peter Roney, managing director at Cambridge Associates.

Charles Whitaker at Agricultural Asset Management (Agri-AM), the newly launched joint venture between Dexion Capital and Brown & Co, agreed that it was great timing for Agri-AM’s foray into US farmland.

And even for existing US farmland investors such as Farmland Partners, the listed real estate investment trust, farmland investors should be in it for the long run.

“Agriculture by its very nature will have cycles of fluctuating supply and demand and investment in farmland by institutions needs to have a longer time horizon than is normal for other more traditional investment asset classes,” added Roney.

Farmland Partners’ Paul Pittman is also not concerned because the REIT’s price is well below the value of the underlying assets.