July 8, 2011
Agriculture land prices in the United States have increased steadily over the last decade, leading experts and landowners to question whether the high values are sustainable. The short answer from the Rabobank International Food and Agribusiness Research and Advisory (FAR) group is that the land value rates are not a speculative bubble, but a decrease in land values over several years is a definite possibility.
The FAR group's research concludes that the steady increase of agricultural land values over the past five years is not linked to speculation or other factors that traditionally result in or lead to a bubble. However, the research does point to factors that could combine to drive a decrease in land values over the next decade. If land values do adjust down over the next three to seven years, the reduction in value will be moderate and not a crash.
The findings are based on the FAR team's global agribusiness marketplace report, "Blowing the Farmland Bubble." 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. Over the past five years, productive agricultural land value in the United States has grown at an average rate of between 20 percent and 70 percent, with the most significant growth in areas producing intensive field crops or livestock.
Many factors may affect the price of land over the next decade. The largest risks include the trend toward absentee farmers as land owned by aging farmers changes hands to non-farming heirs, interest rates, global commodity supply and demand, water availability and new environmental restrictions, reduced farm margins, biofuels policy and inflation.
Reprinted in part from AgWeb.com