Minding Ag's Business

Farmland's Soft Landing, So Far

Farmland's adjustments so far appear calmer than commodity markets.

Dear Doomsayers: There's no farmland bubble bursting yet. No flash crash in spring real estate. To get the best deals in farmland, you'll have to wait.

Recent reports from the Federal Reserve could lead you to believe land markets are suddenly realigning with downsized commodity prices. But the truth is opinion surveys of brokers and bankers report only a "moderation" in farmland values, no collapse. Through the first quarter of 2016, the Chicago Federal Reserve showed averaged land values for good land in its district tumbled 4% compared to a year earlier, the largest year over year decline since 2009 but no calamity. In the Kansas City Fed district, nonirrigated farmland dipped 4% on average, although Kansas fell 8%. Irrigated land on the other hand dipped only 2% compared to a year earlier, but that masked a 13% gain in the Mountain States.

Keep in mind that at least half of all farmland sales are between private parties, with no auctions and no public real estate listings. Only the county clerk knows for sure what land is selling for on any given day. The Peak Soil Indexes published by DTN (Grains Pro subscribers see the Farm Finance page under Farm Business) uses actual sales transaction records to gauge land trends in a half-dozen key Midwest states, based on 30-day and 60-day running averages.

By this measure, average quality Iowa farmland sold for $7,903 per acre on May 31, down slightly over the last few weeks but still above the $7,732 it averaged the same time a year ago; Illinois averaged $7,586 per acre, up from $7,211 in the last year; select crop counties in Minnesota averaged $5,585 per acre and $4,218 per acre, both up slightly in that time period. Only Indiana had slipped slightly (at $6,759 per acre, down from $6,944), as had Nebraska irrigated farmland at $7,032 per acre versus an average of $7,186 a year earlier.

If you're an owner, this sideways trend is good so far. If you're a buyer, some land watchers recommend patience. "The rally we’ve had in corn and beans looks insufficient to drag farmland prices up. I don’t see much to be optimistic about; equipment sales significantly lower, delinquencies picking up and commodity prices at current levels point to a continued slow spiral down," says Paul Kanitra, president of Peak Soil Indexes. "If the Fed gets more aggressive and rates back up more than expected, it could be a faster downward spiral."

Follow Marcia Taylor on Twitter @MarciaZTaylor

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