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Producers expect land value stabilization

Hertz Real Estate Services president Douglas Hensley tells Agri Investor that a strong harvest and recent farmland market resilience have helped buoy sentiment among producers, echoing the findings of the latest Ag Economy Barometer from Purdue University and CME Group.

For the first time in the two-year history of a monthly survey, more agricultural producers expect an increase in US farmland values over the coming year than a decrease, according to Purdue University and CME Group.

In the November reading of its Ag Economy Barometer, Purdue and CME Group wrote that just 17 percent of the 400 producers surveyed by phone expected farmland prices in their area to decline over the next year, a record low for that reading. Also in November, a finding that 21 percent of producers expect farmland prices to rise in the year ahead marked the first time more producers reported expecting an increase than a decline.

A record high 62 percent of November survey respondents expected no change in farmland values over the next year, though the five-year outlook did reveal another note of optimism.

“The percentage of respondents expecting higher farmland values in five years was more than double the percentage of producers expecting higher values in 12 months,” the report’s authors wrote. “Responses to this question imply that there remains strong underlying support for farmland values among producers, even though margins in crop agriculture have been very narrow for several years in a row.”

The exact percentage of respondents expecting farmland values to rise over the next five years was not disclosed in the report and Purdue/CME representatives did not return a message seeking further detail by the time of publication.

Douglas Hensley, president of Iowa farmland brokerage Hertz Real Estate Services, told Agri Investor that Ag Economy Barometer’s reading of producer sentiment on farmland prices largely reflects what he has heard in the market recently, especially in the Iowa, Illinois and Indiana markets where his firm is most active.

While many producers were bearish about the outlook for land prices going into harvest, Hensley said, a larger-than-expected crop has boosted the moods of many farmers, especially those confident in their marketing operations.

“This market is just in such a push/pull right now,” Hensley said. “The limited amount of land for sale, coupled with very, very strong production numbers; coupled with very, very low interest rates, I think, is outweighing the negative factors.”

Recent history can partially explain the gap between producers expecting an increase in farmland values over the next 12 months and those expecting an uptick sometime within five years, according to Hensley.

“We just haven’t seen this land market fall out of bed in the way some people expected, with the level of commodity prices compared with five years ago,” Hensley said. “If we are in a very bearish situation right now, which we are, yet things are holding steady, what does that mean if we have some positive news come into play?”