Research & Data

US farmland values rise defies predictions

The decade-long increase in US farmland prices had been tipped to come to an end, so the news last week that values had defied these predictions was received with surprise – and some scepticism.

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US farmland values rose between June 2014 and June 2015, according to the United States Department of Agriculture, defying predictions that the decade-long rise in farmland prices would come to an end. But one agribusiness consultancy said the figures were lagging behind the market, and could be out by as much as 15 percent.

The USDA said farmland values increased 2.4 percent to an average of $3,020 per acre, a slowdown on the 8.1 percent recorded in 2014, and the slowest pace since 2010, but an increase nonetheless.

Late last year Purdue University’s Centre for Commercial Agriculture predicted a three-year period of decline resulting in a 5 percent to 10 percent a year correction.

Some aren’t convinced the numbers are a true reflection of the current market. “Our own evidence suggests these numbers are 10 to 15 percent off,” said Charles Whitaker of agribusiness consultancy Brown & Co and chief investment officer of Agriculture Asset Management. “They are lagging the market evidence, where we have seen crop land prices 10 to 15 percent off the 2014 market highs.” Whitaker pointed to the Corn Belt as a marker for sentiment. “Even in Illinois A-class land has remained flat for the last 18 months and B to C-class land has come down by 10-15%.

Low global commodity prices have also been weighing on farmland values, with cropland value increasing by just 0.7 percent to $4,130 an acre from the previous period year, according to the report.

Cropland in the Corn Belt, home to the highest farmland values, decreased by 2.3 percent, the first decline since 2009. The biggest drop across the Corn Belt was in Iowa, which saw average prices down 6.3 percent, a stark contrast with 9.4 percent growth recorded in 2014.

The strengthening dollar has also hit the value of land and weakened crop exports, deterring would-be farm buyers.

Despite the uncertain picture, Whitaker believes values are due to stabilise as costs come down and crop prices rise. “The reduction in fuel and fertiliser costs, producer optimism about tighter global 2015 harvest supply increasing crop prices and farm margins should ease the downward pressure as farmers look to better margins from cropland in 2016.”