No sign of farmland price bubble yet
Prices for top-quality farmland so far this year have inched to historically high levels, but there are no signs the market has entered a bubble, according to an expert from the ag lending industry.
Terry Hinds, vice president of business and corporate relations with 1st Farm Credit Services in Normal, last week told the Illinois Farm Bureau Profitability Advisory Team returns on farmland remain strong relative to other investments.
“The ag economy continues to be relatively strong compared to the rest of the economy,” Hinds said. “That’s led to some pretty solid real estate values.”
Hinds reported 1st Farm Credit Services tracks farmland values and estimated prices in July compared to the previous year increased 4 percent for Class A ground, 5.2 percent for Class B ground, and 2.4 percent for Class C ground.
Farmland prices in the state as of July ranged from $6,302 to $8,797 per acre for Class A ground, $4,700 to $6,500 for Class B ground, and $2,502 to $7,000 per acre for Class C ground.
“Farm real estate (value) remains strong,” said Hinds, who noted Illinois farmland values from 1970 to 2010 appreciated annually by an average of 5.9 percent. “That’s a pretty good long-term rate of return for farmland.”
And the trend could continue, 1st Farm Credit Services anticipates strong commodity prices moving forward and a possible increase in outside investors who may seek farmland as a safe investment.
But even if the farmland market doesn’t crash similar to what happened in the housing market, there are some potential cracks in the foundation that could threaten farmland values down the road.
“The biggest risk is interest rates,” said Hinds, who recalled interest rates for farmland in the 1980s reached nearly 20 percent.
The inevitable rise of interest rates, particularly if it corresponds with a drop in farm income, could reduce demand and prices for farmland. Hinds encouraged farmers who have not done so already to lock in a portion of their current debt at low interest rates.
While the overall farmland market was positive, not all farmland prices increased in the past year. Hinds said the market has softened for lower-quality farmland and transitional land near urban areas.
“The lower-quality land (and recreational land) market has softened,” Hinds said. “We’re just not seeing as much demand for that property.”
http://www.ilfb.org/viewdocument.asp?did=19069
Terry Hinds, vice president of business and corporate relations with 1st Farm Credit Services in Normal, last week told the Illinois Farm Bureau Profitability Advisory Team returns on farmland remain strong relative to other investments.
“The ag economy continues to be relatively strong compared to the rest of the economy,” Hinds said. “That’s led to some pretty solid real estate values.”
Hinds reported 1st Farm Credit Services tracks farmland values and estimated prices in July compared to the previous year increased 4 percent for Class A ground, 5.2 percent for Class B ground, and 2.4 percent for Class C ground.
Farmland prices in the state as of July ranged from $6,302 to $8,797 per acre for Class A ground, $4,700 to $6,500 for Class B ground, and $2,502 to $7,000 per acre for Class C ground.
“Farm real estate (value) remains strong,” said Hinds, who noted Illinois farmland values from 1970 to 2010 appreciated annually by an average of 5.9 percent. “That’s a pretty good long-term rate of return for farmland.”
And the trend could continue, 1st Farm Credit Services anticipates strong commodity prices moving forward and a possible increase in outside investors who may seek farmland as a safe investment.
But even if the farmland market doesn’t crash similar to what happened in the housing market, there are some potential cracks in the foundation that could threaten farmland values down the road.
“The biggest risk is interest rates,” said Hinds, who recalled interest rates for farmland in the 1980s reached nearly 20 percent.
The inevitable rise of interest rates, particularly if it corresponds with a drop in farm income, could reduce demand and prices for farmland. Hinds encouraged farmers who have not done so already to lock in a portion of their current debt at low interest rates.
While the overall farmland market was positive, not all farmland prices increased in the past year. Hinds said the market has softened for lower-quality farmland and transitional land near urban areas.
“The lower-quality land (and recreational land) market has softened,” Hinds said. “We’re just not seeing as much demand for that property.”
http://www.ilfb.org/viewdocument.asp?did=19069
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