Report explores possibility of decline in land values even if rental prices stick
A new report from the Rabobank Food & Agribusiness Research and Advisory group finds that order for U.S. ag commodity production activity to remain economically viable, land rent must decline. The report, "The Land Value Wave Dips: Land Values Set to Decline Further, Despite Sticky Rental Prices," explores the impact of low commodity prices on land values and rent prices..
The report goes on to note that from 2006 to 2013, significant increases in commodity prices, due to surging demand, signaled the need for more land to be converted to row crop production. The subsequent steep increases in agricultural land values have pulled enough acres into row crop production to oversupply most commodities, both domestically and globally.
"The result of this oversupply has been to drive agri commodity price levels below breakeven. After two years of economic losses at the farm level which resulted largely from the significant drop in commodity prices the cost of renting land remains sticky and unsustainably high," notes report author and Rabobank senior analyst Sterling Liddell.
According to Rabobank, in 2017/18 and moving forward, rent values need to begin dropping in order to balance with lower commodity prices over the long term.
"We believe this will lead to the valuation of land also adjusting lower," notes Liddell. "If rental costs remain sticky at unsustainable levels through the 2017/18 growing period, individual land assets face the threat of much deeper devaluation, as nutrient and crop protection programs are cut and abandonment (usage changes) increases."