Farmland Rally May Ease as Crop Prices Drop, Economists Say

U.S. Farmland Rally May Ease as Crop Prices Drop, Economists Say
Workers unloads calrose medium grain rice into a bankout wagon in Williams, California. Photographer: Ken James/Bloomberg

The pace of gains in U.S. farmland values may ease as crop prices decline and fertilizer and fuel costs rise, according to economists including Ken Keegan at Farm Credit Services of America.

Declining profit indicates that farmers, who dominate rural land purchases, probably won’t bid prices higher, Ken Keegan, the chief risk officer at Farm Credit Services in Omaha, Nebraska, said today at a forum in Washington. Low interest rates and agricultural debt make a plunge from a record rally in farmland unlikely, he said.

“You have many buyers who feel we have reached a price point that is difficult for them to justify,” said Keegan, whose bank owns and manages $21.8 billion in assets in Iowa, South Dakota, Nebraska and Wyoming. “We’ve reached levels where you have to be very bullish” on farm profitability to justify higher land prices, he said.

The average value of an acre of U.S. farmland climbed to a record $2,350 in 2011, according to the U.S. Department of Agriculture. Last year, Midwest prices measured by the Federal Reserve Bank of Chicago rose 22 percent, the most since 1976, while the Federal Reserve Bank of Kansas City said cropland in its region jumped 25 percent and ranch land gained 14 percent, according to reports in February.

Keegan spoke at a monthly forum held by the Farm Foundation, an Oak Brook, Illinois-based nonprofit that studies agriculture. Other speakers included Brent Gloy, an agricultural economist at Purdue University in West Lafayette, Indiana, and Jason Henderson, a Kansas City Fed farm analyst.

Profit Margins

The Fed said in a report today that tight supplies for agricultural chemicals and corn seed exist in the Chicago region and that input costs are rising in the San Francisco Fed area. Shrinking profit margins signal that farmers will be reluctant to pay higher prices for land, Henderson said. Hedge funds and other investors probably won’t outbid growers for property amid concern that crop prices will decline.

“Nonfarm investors are there and still bidding, but when it comes down to winning the bid, it’s still farmers,” he said.

Before today, corn futures on the Chicago Board of Trade dropped 1.8 percent this year, and wheat declined 3.2 percent. Soybeans climbed 18 percent.

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