Farm Land Prices Continue To Tank, Leaving No Place To Hide

The downward turn in US farm land prices has continue again this month, although at a slower rate, with continued signs of decline in key Midwest states, such as Iowa.

farm land returns

Deadline extension

However, the university studying the trend did note differing patterns across the area surveyed, from Wyoming to Missouri, stating “there is a great deal of variation across the region in the direction and magnitude of farmland prices”.

The data comes on the heels of some evidence in reports last week from the Federal Reserve and the US Central Bank, which showed some slowing in the price fall in Iowa, with the quarter-on-quarter rate of decline braking to 1% in the first three months of the year from around 3% in the October-December period. It is predicted by some experts that land prices could slide another 25% this quarter.

This included Grant’s Interest Rate Observer which notes grain prices, land prices, weather, inflation and deflation all as “topics under discussion” and the reason for the fall in land prices after three decades of appreciation and Robert Shiller who said farm land was in a bubble. What is interesting that many bubble “forecasters” looked to farmland for safety and are probably getting hit on this “safety” investment. The asset was the best performer in the past 20 years as we previously reported. 2014 was the first year prices were down since 1986, and that trend is continuing  As the WSJ notes:

Real farmland values in parts of the Midwest fell at their fastest clip in almost 30 years during the first quarter

One factor that is unpredictable is the weather. “Acknowledging that great mystery, and based upon calls with various knowledgeable people, I estimate we’ll see another 10% drop in (farm) lease rates,” the report said. “That would imply another historically steep drop in land prices.”

“Some respondents reported there were still potential farmland buyers with resources to make purchases, especially for higher-quality ground and acres in certain locations,” said the Fed’s Chicago bank, which covers major Midwest states, like the Tri-state area.

Meanwhile, lowered interest rates has given some incentive to buy land and pricing by “diminishing the lure of alternative investments”, the Chicago Fed has stated.


Farm LandDismal Expectations for farm land

The Creighton University study demonstrated a new downturn in the fortunes of the agricultural machinery industry, with a sector sales index dropping to a “dismal” 10.7 this month from 11.1 in April 2016.

“Weakness in farm income and low agriculture commodity prices continue to constrain the sale of agriculture equipment,” said Ernie Goss, the Creighton Economics professor, in charge of the survey.

All around, the “American family farm” is failing. The land has become devalued, the price for produce from the farm is falsely inflated/deflated, and thus the sales of farm machinery also decline. All of this combined has caused an across the board downward spiral of the homegrown American farm and food made in the USA.

“Reductions in farm [land] prices have negatively affected local agricultural equipment dealers and regional manufacturers of farm equipment.” Machinery mogul Deere & Co. is due later on Friday to report quarterly results.

Is the last “safe” asset gone? Only time will tell.