Despite a downturn in grain prices and lower net farm income expectations among farmers and investors across the Midwest, demand for high quality farmland remains strong. A limited supply of such quality ground is contributing to a healthy demand for premium farm acres, even though prices for farmland in general seem to be moderating following the five year boom in land values.
While the primary competitors for such ground are farmers themselves, local investors seeking to expand their portfolios continue to show great interest in obtaining these valuable parcels of ground. When such land become available, both parties show healthy interest and appear willing to pay top dollar for it.
Even with this stable demand, landowners and farmers themselves remain cautious when it comes to investing in more ground. While many are better positioned now, with less debt, than during the 80’s land bust, they are seeking to invest smartly. For many, this means putting more effort into finding only the best quality farmland.
Mike Walsten, editor at Landowner, projects that farmland values in general will fall about 10% this year, based on current expectations. He says that demand for quality farmland will remain fairly stable, while demand for less quality farmland will continue to weaken, especially should profit margins further weaken at the same time.
In the longer term, Walsten is confident that farmers and landowners will weather these market corrections if they show restraint in adding more debt. He cautions that adding more debt to maintain spending will create problems—something that many producers learned the hard way during the 80s land boom and bust. Another factor that could greatly influence landowner decisions are rising interest rates, especially in the latter half of 2015. Higher interest rates would further dampen land values.
Still, investing in farmland remains one of the best and safest long term investments—something that landowners and especially outside investors recognize. One of the main drivers of recent interest in investing in farmland is based on the burgeoning world population, which is expected to peak at 9 billion by 2050, up from 7 billion today. Growth, especially in developing nations, will substantially drive up demand for food. In addition, the quest for biofuels remains a contributing factor to the high demand for quality farmland. In the US, for example, corn grown to produce ethanol accounts for 23 percent of total corn use.
It’s no secret that owners of quality farmland are poised to benefit from such trends, and while land values are currently softening, many experts remain bullish on land values going forward, especially for high quality farmland.
Are you seeking to make the most of your farmland, or are you looking to expand your portfolio and think that land ownership would be a good fit for you? Let the experienced professionals at United Farm and Ranch Management help you determine the best plan of action to benefit your unique situation.
Birt, Nate. “Farmland Prices: Demand Ticks Up for Good-Quality Ground.” Agweb.com. Farm Journal. 07 Apr. 2014. Web. 24 Apr. 2014.
Murphy, Richard McGill. “The Best Long-Term Real Estate Investment: Farmland.” CNBC.com. CNBC. 24 Mar. 2014. Web. 24 Apr. 2014.