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Uncertainty rules farm land prices

By Staff | Sep 6, 2014

“For me, I continue to see farmland as a good investment.” —Mike Duffy ISU economist

SIOUX CITY – Uncertainty, said Mike Duffy, professor emeritus of economics at Iowa State University, is the watch word for farm land price expectations.

Duffy was in Sioux City on Aug. 26 speaking on future farm land values.

“There’s the drop in commodity prices and farm income,” Duffy said. “We’re seeing land values softening, but we’re also seeing some strong sales because there are some farmers who still have money.

“If these producers see a piece of land come up for a little less than it might have been, they’re willing to pay for it.”

The overall trend, however, is that values will fall.

“The question in my mind,” Duffy said, “is whether or not this drop will be a falling off the cliff or a starting to roll down the hill.

“We’re not seeing debt being taken on as has been the case in the last seven to eight years. While there’s going to be some people in trouble for not minimizing debt, I don’t expect, overall, it’s going to be anything like it was in the 1970s and 1980s.”

Helping to soften land price declines a farm crisis, Duffy said, has been farmers and lenders have taken wise steps in their risk management.

“An underlying factor has also been that the most recent run-up in land values has been income-based,” he said. “The run-up in the ’70s was speculative-based.

“When you look at what incomes were doing at this period, you see we had the one big peak year in 1973, and then for the rest of the time, the income had been on the downward trend with land values still going up.”

Duffy acknowledged that while investor interest continues in farm land, as the 2013 Farm Land Survey showed, farmers were the predominate land buyers.

“Investor interest waned when we got some of these very high prices,” he said, “but I still get called a lot by those looking at investing in farm land or who represent groups looking at farm land,

“For me, I continue to see farmland as a good investment when you remember that when you get into land for the long haul, it’s a good investment.”

He said investors are, in reality, providing a farmer with the liquidity needed to farm more acres they can’t otherwise afford.

“There’s been the feeling that investor was kind of a dirty word,” Duffy said, “and I think, in some cases, investors may have come in and done wrong by the land; but, overall, I’m not ready yet to condemn them.

“It depends on who they are and how they’re handling it. This was the big issue we saw in the 1930s.

“It was obvious that nearly 60 percent of farmland was being rented by mostly mortgage companies who didn’t care about the land.

“What we see presently is that some of today’s investors are perhaps good, maybe even better, stewards of the land than were the previous owners.”

For producers considering future land purchases, Duffy said, they can’t be lax in good risk management, with corn prices halved in the past year.

“Farmers buy land to own it, not to sell it,” he said. “That said, however, even if it is a little higher if the land was for instance, grandpa’s land, or (it) adjoins their property, they may want to pay more for it.”

Values down, costs rise

Rex Wilcox, Stalcup Ag Service of Storm Lake, reminded farmers of their on-going need to be cognizant of their farm management.

“Prices have come down, and we’re looking at a pretty good reduction in farm income,” he said. “This is something farmers are going to have to plan for as they look at their leases and their land purchasing options.

“Input costs don’t appear likely to be going down very much. Fertilizer prices are pretty steady, but with high transportation costs. The difficulty trains are having moving things around will also be an issue regarding future prices.”

Producers are expected to benefit from developing weed control programs for soybeans, Wilcox said, as well as soil insect control offering higher yield potential.

He said he expects the grain industry to outlast GMO opponents enhancing production and food safety.

“If we don’t have GMO’s we won’t be getting the higher yields,” he said, “and if we don’t use them, we’ll be seeing higher food prices.”

Falling rents

“A lot of land owners have seen their cash rents come down this year,” Wilcox said. “The biggest adjustment will come next year.

“The situation is different for every farm, but, in general, I see these rents needing to come down.”

Hit hard by the current farm economy is implement dealers, noting lay-offs at John Deere plants – about 1,000 jobs in Waterloo, Ankeny and the Quad Cities.

“Machinery values are going to show some decline,” Wilcox said. “Used machinery may not come into the market for producers as nicely as in the past.

“It’s going to be tough on the implement dealers. All manufacturers are going to have more capacity than sales,.

“The Deere situation indicates what I think will happen industry-wide.”

World grain

Wilcox said he expects China’s appetite for soybeans will likely keep exports up as China bolsters its livestock industry.

Will China be a corn buyer as well?

It’s “hard to tell,” he said. China’s continued desire to buy soybeans rather than corn can be an influential factor in this situation with regard to broad-based observations.

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