Trends to Watch That May Affect Land Values
April 1, 2019
There are a multitude of good informational
sources pertaining to agriculture with the U.S.D.A leading the way along with
both the National Agriculture Statistics Service (NASS) and the Economic
Research Service (ERS) which are within the U.S.D.A. In addition, land grant
universities generate great information as do private firms and individuals
involved in ag. Put it all together and those involved in
agriculture have a full complement of informational resources to assist them in
their analysis and work. Many are paying close attention to the economic and
debt trends in agriculture right now in order to garner some idea where the
land market might be headed.
Several trends reflect a negative effect on land values. One is the trend in
Net Farm Income. With 2018 forecasted net farm income to be near $64 billion
and 2019 expected to be near $69 billion, the trend for farm income remains
well below the longer term real net farm income of $84 billion. The trend in
Working Capital (current assets - current debt) is going the wrong way for U.S.
agriculture. With a recent peak of just over $160 billion in 2012, working
capital is projected to decline to near $50 billion in 2019. Overall ag sector debt has increased in real terms to almost the
high reached in 1980-81 with real estate debt increasing the most over this
time. One last trend to watch is the Debt to Income Ratio that has been moving
up the last few years, but remaining well below the 1980's peak. Finally, we
have to remember that the majority of agricultural landowners have no debt due
to their age, paying off previous debt over the years, or inheriting the land
debt-free. Overall statistics and trends may not reflect what is happening with
individual farmers and ranchers.
Several positive trends are also having an impact on land values. One important
one is Interest Rates. Rates are remaining historically low and recent Federal
Reserve comments indicate that rates will be holding steady for the time being.
Capitalization Rates for farmland and the yield on the Ten Year U.S. Treasury
Bond have tracked fairly closely since the 1980's. Both indicators are
currently on the low side of historical trends and may remain there for awhile
longer. Another trend in the land market is the lower quantity of farms and
ranches for sale. This has been lending support to land prices for a number of
years. Landowners, producers, and lenders are watching this trend very closely.
Overall ag trends are important to watch as they are
indicators of underlying economic factors affecting producers and the industry.
These trends also impact land values and the land market. The aggregate trends
in agriculture are only half the story as the situation of individual producers
and landowners has great bearing on area land markets and prices. Agriculture
is watching both macro trends and individual trends to look to the future.
President - Real Estate Operations
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