December 16, 2019
A new decade will dawn in a few days and in the midst of continuing uncertainties in agriculture and the world, one of the constants is the importance of land values for producers and landowners as evidenced by the fact that land makes up 82% of the total value of assets in American agriculture. The ag land market has been on a plateau for a number of years with the on-going thought that the values were not fully supported by the underlying economics. With the coming year, now is a good time to give thought to what the land market might look like in 2020.
Several factors affecting farmland values in 2020 have been in the market for a number of years and the continuation of these is important to the finances of agriculture and to land values. Interest rates are historically low and are poised to remain so for the foreseeable future which is supportive to land values on multiple fronts. The other vitally important factor for the next year at least is the continuation of MFP payments at a significant level. At this writing, it is uncertain whether there will be a significant and lasting resolution to the Chinese trade tariffs soon which means a continued challenge for producer's incomes across many regions and crops. With the on-going income hit for producers and the fact that 2020 is an election year, the common sense prediction would be that MFP payments will happen in 2020 which supports ag incomes and cash flows. If there actually is a positive resolution to the trade issues, then commodity prices would benefit.
There are factors that could have a more depressing influence on farmland values in 2020. One is the question of whether the land market will see an increase in financially caused sales of land by producers, how many extra sales in an area, and if these could overcome demand. Currently, the outlook is not for a significant increase in most areas, but it is a factor to watch play out between now and the end of loan renewal season. The performance of the US and world economies is being watched for any further depressing effect on agricultural demand. Normally, ag and land values are counter cyclical to other investments, but how the world's trade and economies perform over the next several years could create additional challenges for US agriculture. An outside influence to watch is the historically high level of corporate debt at $10 billion and if that is sustainable over the coming years.
Demand for good quality cropland should continue to be adequate for the supply of land for sale. This may be tested in the regions that experienced a truncated harvest of crops or had lower yields. Other regions experienced good yields and will have renewed optimism by farmers to bid on land coming up for sale. Commodity production agriculture will continue to work through average or below income years for a while unless supply disruptions happen or demand increases from current levels.
With the variability of regions as far as the 2019 harvest, financial stress on some individual producers, and the amount of land that will come up for sale, land values will once again remain fairly steady for good quality cropland in most regions. Lower quality land will continue to have softer demand, but prices may not be pressured as much as the past six years. Overall, there could be more variability in land value changes than over the past few years due to the factors mentioned above.
Thank you for reading the Land Market News during the past year. We hope it gives you something to watch for and consider.
Please note that there will not be a Land Market News sent the next two weeks in observance of the holidays. The next Landowner News will come January 6th.
Senior Vice President - Real Estate Operations
|Category: Agricultural Real Estate News|