The USDA economists also report that farmland values are higher around urban areas because it is typically purchased for housing development. But with the sluggish market for new homes, and reduced expansion of subdivisions around cities, land values have been more driven by their income producing ability than by their potential for development. However, residential development still has the potential to drive up values in the vicinity of urban areas.
What about the future? The USDA economists believe that demand for commodities will support farm income, and the combination of farm income and low interest rates will keep land values at or above their current levels. However, increased interest rates, increased market volatility, and elimination of government payments could lead to reductions in land values. While interest on farm loans continues to be low, rates are subject to outside influences. And while farmers are not highly leveraged, any rapid rise in rates could make debt service difficult.
Mark Your Calendar
A conference on farmland values and cash rents for 2013 is scheduled for Wednesday, November 7, at the Decatur (IL) Conference Center and Hotel, presented by AgEngage and sponsored by Farm Credit. Speakers will address many issues of importance to land owners, prospective buyers, cash rent operators, lenders, farm managers and others. Details on the conference and registration information are available here.
Farmland values have increased at an accelerated rate over the past 12 years, and as long as commodity prices remain strong and interest rates remain low, land prices are expected to rise and be supported by stable financial pillars. Many non-agricultural factors are influencing land values, but stable returns, low interest and increased demand to participate will keep pushing prices higher.
Source: FarmGate blog