What’s the outlook for land values?

Here's a look at whether the farm economic downturn will hit bottom this year.

Commodity prices and the farm economy drive land prices. The farm economic downturn will likely continue this year and possibly into 2018, with production costs slow to decline and record grain supplies in the nation’s grain bins. That’s the conclusion of economists and others who spoke at the 10th annual Land Expo this month in Des Moines. The daylong event was attended by nearly 700 Midwest farmers, landowners and investors.

Farmers need to reduce costs and adjust to agriculture’s continuing sluggish financial outlook. Jim Knuth, senior vice president of Farm Credit Services in Iowa, encouraged farmers to refinance their debt (real estate, machinery, equipment) to get longer repayment terms, to lower annual payments and improve cash flow. He calls this the power of amortization.

Many farmers adopted aggressive repayment plans when the farm economy was stronger several years ago, but using that approach now can restrict cash flow — which a farm business needs to operate. “We need to adjust to the different revenue environment,” he says. He doesn’t expect interest rates to rise too far from historic lows and hurt farmers, but now is the time to refinance — while interest rates are still low.

The decline in commodity prices over the past several years — while costs for seed, chemicals and other inputs have remained stubbornly high — has reduced farm income considerably. USDA expects U.S. farm income to fall to $66.9 billion when figures for 2016 are finalized, 46% below the high in 2013. “2017 looks like the fourth soft landing we will see for agriculture,” says Knuth. “It’s hard to say when the industry will hit bottom and begin rebounding.”

Only one lawsuit away
Someone noted that farmers could be one lawsuit away or one election away from greater environmental regulations. Iowa Secretary of Agriculture Bill Northey, another speaker at the meeting, was asked what can be done to encourage greater adoption of existing federal soil conservation and water-quality improvement programs. Driving around the state he says it's obvious Iowa doesn't have enough participation building grass waterways, filter strips, buffers, restored wetlands and edge-of-field practices. More acres participating in conservation programs would make a positive impact.

Northey adds, “We don’t have terraces or grass waterways in every place where we need them. But we are seeing momentum continuing to build for the conservation ethic among farmers and landowners. Is it happening fast enough? I don’t know. Is the public happy with our progress? Some are, but most aren’t. We have a ways to go, and we need to keep going.” Northey detects no interest from farmers in backing away from working to improve water quality. “Five years ago we heard farmers questioning whether we needed to be involved in water quality efforts. Today, I hear them say, ‘We need to be part of this solution. We need to figure out how to do this.’”

The Iowa Supreme Court recently ruled the Des Moines Water Works can’t collect damages in its lawsuit against three northwest Iowa counties over high nitrates in the Raccoon River, a source of drinking water for 500,000 central Iowans. “But we can’t let up on our conservation and water quality efforts,” says Northey. “We need to keep progressing.”

 

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