Land Prices are Dazzling

Aug 01, 2012

Rabobank Releases US Farmland Values Report

Rabobank, a global leader in agriculture and food finance, today released its US farmland values report. The report indicates that farmland continues to rise dramatically in price; with 2011-2012 increases in excess of 15 per cent in many regions. Contributing factors to this land value increase are the rising commodity prices, low interest rates, and strong land rental rates. This continues a positive six year trend.

The states of Iowa, North Dakota, South Dakota, Nebraska and Illinois are featured as some of the most ‘dazzling’ states ; where increases of land values were reported in the range of 16 to 25 per cent.

The Rabobank report states “looking ahead to the first half of 2013, US farmland values are expected to increase at a slower rate than in 2011 and 2012.”

The Rabobank report provides an excellent review of the market movement in farmland, as well as the contributing factors that drive this result.

From a business management perspective, it is always important to review the past experience, but it is also important to think about the future market direction.

The Farms.com Risk Management team has written a number of articles about the 2012 drought that has impacted much of North American crop land. We believe that this drought will also have an interesting impact on future land values. However, the extent and direction of this impact, is uncertain as of yet.

The drought has certainly raised grain prices to record highs, which is usually a strong driver to support even further increased land values. However, with lower yields, farmers may not have the cash flow to support expansion, which will decrease the impact of this otherwise bullish motivator. Likewise, the livestock sector, feeling the negative impacts of higher grain prices, may not be an aggressive market player.

Our view at Farms.com, is that from a macroeconomic perspective, the continued global demand for commodities, will continue to support land values and ensure that this type of asset performs well as an investment over the long term.

Video: Will the 2025 USDA December Crop Report Be a Market Mover/Surprise?

Historically, the USDA December crop report is a non-event or another dud report as the USDA reserves any final supply changes to the final report in January of the following year in this case 2026. But after the longest U.S. government shutdown in history at 43 days and no October crop report will they provide more data/surprise and make an exception?
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The final Stats Canada production report was bearish canola and wheat projection a record crop in both (it adds to the global glut of supplies) and bullish local corn and soybean prices in Ontario/Quebec thanks to a drought. It will not help the fund flow short-term, the USDA may need to offset it?
A U.S. Fed interest rate cut of another 25-basis point next Wednesday (probability 87.1%) could help fund flow and sentiment in stock and ag commodities into year end.
More inflows into Bitcoin this past week saw prices rebound back above 90,000 with support at 82,000 and resistance at 96,000.
A V-shaped bottom in cattle suggest the lows are in after Mexico reported another new world screwworm case. Lower weights, seasonal demand and higher U.S. beef select/choice values with a continued closure of the Mexican border to cattle will result in a resumption of higher cattle futures into yearend.
Australia is expected to produce its 3rd largest wheat crop ever at 36 mmt adding to the global glut of supplies.
Reports of ASF in hogs in Spain the largest pork exporter in Europe could see the U.S. win more pork export business long-term.
If the rains verify into next week of 3-5 inches for Brazil it would go a long way to fixing the dry regions from the last 2-months, but the European weather model has been wrong for the past 2-months!
Natural gas futures are surging to the 3rd price count as frigid hold temps set in.
CDN $ is also surging to end the week on a very resilient economy and better employment numbers suggesting no interest rate cuts next week.
Finally, the CFTC report showed funds were net buyers of soybeans but sellers of corn, canola and wheat. In real time the funds have gone back to selling as they take some profits.