SOURCE: Rabobank, N.A.

Rabobank, N.A.

September 24, 2013 13:49 ET

Rabobank Report Finds U.S. Land Values Acceleration to Slow

Looming Interest Rate Increases and Falling Commodity Prices Foreshadow a Decrease in Land Values

FRESNO, CA--(Marketwired - September 24, 2013) -  Investment in U.S. farmland is still competitive with alternative investments, but the era of extremely low interest rates and extraordinarily high commodity prices is drawing to a close, according to a new report from the Rabobank Food & Agribusiness (FAR) Research and Advisory group.

"We'll likely see lower commodity prices this year, but they aren't going to be low enough long enough to substantially impact land values over the coming year or so," says report author and Rabobank Food & Agribusiness Research and Advisory (FAR) senior analyst Sterling Liddell. "In the short term, strong farmer balance sheets and high rental rates will support current levels. However decreasing commodity prices will keep the values from accelerating as rapidly as they have been."

The report, "Land Values Peaking Out -- But Not Down," finds in the medium term, the single greatest risk to U.S. agricultural land values is looming higher interest rates. Interest rates have been increasing through the first half of 2013, but based on the current Federal Reserve policy, a significant increase isn't expected until 2014 or 2015.

"We are entering an era where planning how you're going to pay for your land is likely to become as important as planning for marketing your crop," notes Liddell.

The report forecast finds a decline in land values in the central U.S. of 15 to 20 percent over the next three years. In the Western and Southeast U.S., the decline will be less marked than in the Midwest. The key determinant in the susceptibility to land value changes is an area's reliance on grain and oilseeds. While an increase in interest rates will have a similar impact on agricultural land values throughout the country, the amount of change will depend on the type of crop production and proximity to urban areas.

Central U.S.
Since the four dominant commodity crops (corn, soybeans, wheat and cotton) compete for the same acres in the Midwest, Plains and Delta regions, global grains/oilseed prices will be key factors in determining land values. As global stocks grow, prices will drop, leading to some decline in values over the next two to three years.

Corn led the ramp-up in commodity prices and the associated increase in ag land values. As such, if corn were to fall below 4.50/bu for an extended period of time, a significant decrease in land values could follow.

Western U.S.
Vernon Crowder, senior analyst with FAR, co-authored the report and notes that in the Western U.S. agricultural land values are expected to move in the same direction as those in the Midwest.

"The changes seen in land values in the West, especially those in California, should be less dramatic than that of the rest of the country," said Crowder. "This is due in large part to the diversity of crops grown in the region."

Orchards, vineyards and irrigated land in the Western U.S. have seen extreme increases in land values due to strong market prices and growing export demand. Interest rates will be the primary determinant of any decline in the value of farmland, but the strength of the U.S. dollar is also important due to the rate of exportation for many commodities produced in the Western U.S. A stronger U.S. dollar will negatively impact exports.

Southeast U.S.
The Southeast U.S. has seen a modest appreciation of irrigated cropland, as it weathers a severe drought. Florida in particular is in the midst of a difficult era, due in part to weather, disease, increased competition from imports and influence of the struggling housing market leading to a lack of appreciation of farmland value.

Expected increases in interest rates and declines in major cash commodities will lead to a difficult medium term, especially if commodity price declines lead to a reduction in land rents.

The full report explores the drivers behind the increase in ag land values, factors responsible for determining interest rate increases and regional variations. The full report is available exclusively to clients of Rabobank, Rabobank, N.A. and Rabo AgriFinance. Media can obtain the full report by contacting Sarah Kolell at Rabo AgriFinance or Jessup Wiley at Rabobank, N.A.

About Rabo AgriFinance
As a leading financial services provider for agricultural producers and agribusinesses in the United States, Rabo AgriFinance adds value using industry expertise, client-focused solutions, and by creating long-term business relationships. Rabo AgriFinance offers a comprehensive portfolio of services that give producers the right products to prepare for, and take advantage of, market opportunities. Rabo AgriFinance representatives offer a wide array of financial services and knowledge to help customers realize their ambitions. This comprehensive suite of services includes loans, insurance, middle market agribusiness, input finance and sophisticated risk management products. Rabo AgriFinance is a division of Rabobank, the premier bank to the global agriculture industry and one of the world's largest and safest banks.

About Rabobank, N.A.
Rabobank, N.A. is a California community bank and a leading provider of agricultural financing and full-service banking products to California consumers, businesses and the agriculture industry. With nearly 120 retail branches, we serve the needs of communities from Redding to the Imperial Valley through a regional structure that promotes local decision-making and active community involvement by our employees. 

Rabobank, N.A. is a division of the Rabobank Group, the premier lender to the global food and agricultural industry and a financial services leader providing commercial, retail and agricultural finance solutions in 48 countries around the world. From its century-old roots in the Netherlands, Rabobank has grown into one of the world's largest and safest banks. www.rabobankamerica.com

About Rabobank International Food & Agribusiness Research and Advisory (FAR)
The Rabobank International Food & Agribusiness Research and Advisory (FAR) group is a global team of more than 80 analysts who monitor and evaluate global market events that affect agriculture worldwide. This international team works to collect key insights into commodity markets; conduct in-depth analysis of the factors that drive sector success (or failure); and examine the megatrends that ultimately influence clients' business strategy. These analysts are internationally respected experts in sectors from protein to produce, inputs to oilseeds, and their knowledge is shared with Rabobank customers. 

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