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Rabobank Says Rally in Farmland Values Will Slow Next Year

U.S. farmland values will increase at a slower rate in the first half of 2013 because of the “dramatic” gains in 2012 and “looming macroeconomic worries,” according to a Rabobank International report.

Land values jumped in late 2011 and early in 2012, gaining more than projected by the bank, Sterling Liddell, a vice president of Rabobank’s food and agribusiness research and advisory, said today in the report. High commodity prices, low interest rates, rising rental rates and strong relative returns in agriculture signal that farmland will continue to be “an attractive investment,” said Liddell, who authored the report.

“There’s downward pressure because there’s beginning to be a perception that farmland values have risen too fast and may have outpaced their fundamental drivers slightly, which would lead us to expect a slowing down in the rate of increase,” Liddell said today in a telephone interview.

Farmland value may rise by 10 percent or less in the first half of next year, said Liddell, who is based in St. Louis. The gain during the 12 months through June was between 20 percent and more than 30 percent, exceeding the bank’s June 2011 forecast for a 10 percent increase this year, according to the report. Higher corn, soybean and wheat prices because of tight global stockpiles drove the land rally, Rabobank said.

The current widespread U.S. drought could cause a “steeper increase in farmland value” than Rabobank forecast in today’s report if weather conditions cause corn prices to keep accelerating, Liddell said. High prices may be offset by lower yields, leaving farmers with weaker production margins than in the past, which would be consistent with Rabobank’s outlook for a slower increase in land values, he said.

More than 55 percent of the Midwest is affected by severe drought, as of July 24, the U.S. Drought Monitor said today. Corn prices have surged 53 percent since June 15 and reached a record $8 a bushel on July 23.

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