Farmland values that increased by as much as 20% to 30%, and the factors that may eventually slow those growing ag land values, headline an updated land values analysis issued by the Rabobank Food & Agribusiness Research and Advisory group.
"The six year surge in U.S. agricultural land values continues to be top-of-mind for many in agriculture," notes report author Sterling Liddell, Vice President, Food and Agribusiness Research & Advisory. "We expected land values to grow significantly in late 2011 and early 2012 and the growth was even stronger than we predicted; in excess of 30% in some cases."
The report found 16% to 25% growth in farmland values in the Corn Belt states of North Dakota, South Dakota, Nebraska, Iowa and Illinois. Close behind with 11% to 15% growth are much of the remaining states in the country's midsection. Only one state showed a negative change: Virginia.
Changes in land values were figured using 2005 values compared to 2012 values.
In the report titled "U.S. Farm Land Continues to Dazzle," Liddell draws a strong correlation between the rate of growth and higher corn, soybean and wheat prices, which resulted from persistently tight global grain stocks and low interest rates.
"Strong fundamentals including elevated commodity prices, low interest rates, increasing rental rates and strong relative returns to agriculture will continue to make U.S. farmland an attractive investment," Liddell said.
Short term, commodity price volatility and reduced yields fueled by drought may cause higher crop prices therefore additional liquidity in the markets. Liddell said this would likely renew interest in farm investment and threaten to increase land values at a more rapid pace.
The report considers interest rate increases to be the key medium-term threat to maintaining current ag land values.
Looking ahead to the first half of 2013, U.S. farmland values are likely to increase at a slower rate than in 2011 and 2012. The slowdown is a result of the dramatic 2012 jump in values as well as looming macroeconomic worries. This slowdown will help to keep values in line with underlying fundamentals. As a result, such a slowing would be beneficial for the long-term financial health of the U.S. crop production industry.
Long-term, increasing rental rates and farmer ownership is expected to stabilize land values. But, a key threat to that stabilization is interest rate increases.
"The prospect of strongly higher interest rates post 2014 and softening commodity prices from current highs present the key long term risks for U.S. farmland values," notes Liddell.