- Farmland prices will go up and they’ll go down — and in the end, land prices will correct themselves — without a crash.
As “bumps in the road” occur in the farm economy, “farmland prices will reflect that,” Abbot Myers, chairman of the board of the Mississippi Land Bank, said at the organization’s annual meeting.
But, he says, while some analysts are warning of a sharp retreat in land prices, “I don’t foresee another farmland bubble like the one that occurred in the 1980s, when there was a total collapse in values.
“Some people feel prices are too high right now; others say prices will keep steadily going up, but at a slower rate than the past few years. Everybody’s got a prediction. My answer: They’ll go up and they’ll go down — land prices will correct themselves.”
Grain prices and livestock production and the profits they produce are key factors that affect farmland demand and prices, Myers says.
“We saw what happened in the Midwest last year when they didn’t make a normal corn and soybean crop. Prices shot up. Now those prices are going down — one analyst has said he can make a very good case for $4 corn this fall — and beef and dairy prices are coming up.
“It’s going to be a wild year, and a lot will depend on the weather, which we of course can’t control.”
Land rents and production both affect farmland prices, Myers says. “When the production of the land and the renting of the land get out of kilter, something’s going to happen, and price can go down.”
Many land purchases in the last year or two have been by non-agricultural buyers, he says, and “by farmers who’ve either paid cash or paid down a significant amount of cash — they’re not borrowing a lot of money for these purchases. I think this is going to help keep prices from falling the way they did in the 1980s. There may be a correction in farmland prices, but I don’t think it will be a bursting bubble.”
Action, or inaction, of the government also is an influence on farmland prices, Myers says.
“We still don’t have a new farm bill; there has been a lot of playing politics and not much accomplished. We in agriculture don’t have the votes and influence in Washington that we once had, and the basic support we’ve had for farm bills in the past may no longer be there.
“All bankers like to have support and stability in agriculture, but I don’t see that happening in the future. I think we will be more and more dependent on crop insurance. As soon as they make the big payout in the Midwest for last year’s corn crop, politicians are going to say, ‘This shows how effective crop insurance is,’ and that’s the way things will go.”