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Published July 18, 2011, 04:33 AM

Ag land values not in a bubble

ST. LOUIS — Agricultural land prices in the U.S. have increased steadily in the last decade, leading experts and landowners to question whether the high values are sustainable. The short answer from the Rabobank International Food & Agribusiness Research and Advisory group is that the land value rates are not a speculative bubble, but a decrease in land values in several years is a definite possibility.

ST. LOUIS — Agricultural land prices in the U.S. have increased steadily in the last decade, leading experts and landowners to question whether the high values are sustainable. The short answer from the Rabobank International Food & Agribusiness Research and Advisory group is that the land value rates are not a speculative bubble, but a decrease in land values in several years is a definite possibility.

The Food & Agribusiness Research and Advisory group’s research concludes the steady increase of agricultural land values in the past five years is not linked to speculation or other factors that traditionally lead to a bubble. However, the research does point to factors that could combine to drive a decrease in land values in the next decade. If land values do adjust down in the next three to seven years, the reduction in value will be moderate and not a crash.

The farmland bubble

The findings are based on the group’s global agribusiness marketplace report, “Blowing the Farmland Bubble.” Rabobank created and maintains the group’s unit to conduct ongoing research and analysis on issues of importance to agriculture around the world. Rabo AgriFinance, part of Rabobank, provides this information to its client producers and agribusinesses in the U.S.

According to the report, the drivers behind the increase in the value of crop land since 2005 have been a combination of increased commodity prices, low interest rates and a limited supply of land available for sale. In the past five years, productive agricultural land value in the U.S. has grown at an average rate of 20 to 70 percent, with the most significant growth in areas producing intensive field crops or livestock.

Co-author Sterling Liddell, vice president of the group, says a crash is unlikely because current trends in the U.S. are drive by fundamental economics and moving more heavily toward the long-term investor.

“Drivers of bubbles tend to be buying and selling by speculators. The increasing presence of farmers on the buyer side of agricultural land combined with a tight supply of land available for sale provides significant evidence there is not currently a speculator-fueled bubble.”

Price outlook

Liddell notes that another year of strong margins combined with the anticipation of continued tight supplies should drive land prices higher for at least one or two more years.

“On a longer-term basis of three to seven years, the probability of land values adjusting negatively outweighs the possibility of a continued upward trend.”

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