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.

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All major stock indices climb to new record highs. It was Mag 7 reporting week, which had mixed results. But we now have the first $5 trillion company in Nvidia!