A farmland price research report from Rabobank indicates that land values will most likely decrease for several years, but the market will not “crash.” Why? The Rabobank report states that the land price increase is not driven by speculators but by fundamental economics.
“Drivers of bubbles tend to be buying and selling by speculators,” writes co-author Sterling Liddell, vice president, Rabobank International Food & Agribusiness Research and Advisory (FAR) group. “The increasing presence of farmers on the buyer side of agricultural land combined with a tight supply of land available for sale provides significant evidence there is not currently a speculator-fueled bubble.”
Liddell notes that another year of strong margins combined with the anticipation of continued tight supplies should drive land prices higher for at least one or two more years. “On a longer-term basis of three to seven years, the probability of land values adjusting negatively outweighs the possibility of a continued upward trend," he says.
The FAR group’s report states that the drivers behind the increase in cropland values since 2005 include higher commodity prices, low interest rates and a limited supply of land available for sale. In the past five years, productive cropland values grew 20 to 70% in the U.S. The largest increase occurred on farmland with field crops and livestock.
The report cites many factors that may affect the price of land over the next decade. A major factor is the trend toward absentee farmers as land changes hands to non-farming heirs. Other factors include interest rates, water availability, new environmental restrictions, global commodity supply and demand, reduced farm margins, biofuels policy and inflation.
Rabobank’s FAR group compiled the land value report called “Blowing the Farmland Bubble.” The group conducts ongoing analysis of agricultural issues of importance to Rabobank.