Gains in Farmland Values Stall, Ending Five-Year Boom

The five-year boom in U.S. farmland values probably will end this year amid a decline in profits and crop prices that may disrupt the rural economy.

Higher interest rates and falling income stalled gains in prices last year, Jason Henderson, an agricultural economist at Purdue University in West Lafayette, Indiana, said today at an event held by the U.S. Department of Agriculture in Arlington, Virginia. Land values had soared 37 percent since 2009.

“I’ve seen more stories about failed sales” when farms don’t sell for the asking price, suggesting a sluggish market, Henderson said. “A plateau in farmland values is what we’re seeing going forward.”

A projected drop in crop prices may cut annual farm profits 27 percent to $95.8 billion from last year’s record, potentially denting demand for Deere & Co. tractors and Monsanto Co. chemicals, the government said earlier this month.

Futures for corn, the most valuable U.S. crop, sold in Chicago slumped 40 percent in 2013, the most since at least 1960, according to data compiled by Bloomberg. Soybeans, the No. 2 crop, fell 8.3 percent and wheat plunged 22 percent.

Stagnant land prices will cut farmer purchases of equipment and production material, and farmers will need to guard against borrowing beyond their means, Henderson said.

“If we don’t leverage the farm, the downturn in agriculture won’t be more than a speed bump,” he said.

Crops, Combines

Lower corn prices prompt farmers to hold their crop, reducing profit because the company has less to ship, Archer-Daniels-Midland Co. Chief Operating Officer Juan Ricardo Luciano said during a Feb. 4 conference call.

The drop in prices may cut tractor and combine production as much as 10 percent this quarter at Agco Corp., maker of Massey Ferguson products, Chief Executive Officer Martin Richenhagen said this month.

Low debt levels may help farmers get through the slump in farmland values, said Jennifer Ifft, an agricultural economist with the USDA’s Economic Research Service. Debt probably will remain under control for farmers “unless there is a large drop in land values,” she said at the forum.

About 16 percent of bankers in the Kansas City Federal Reserve district said in a report earlier this month cropland prices will fall this year. A year ago, 1 percent forecast 2013 prices would drop. Price gains that exceeded 10 percent in 2012 slowed to 5 percent last year in the Chicago and Dallas Fed band regions, Henderson said.

Before it's here, it's on the Bloomberg Terminal.