Every year, Illinois Public Media and WILLAg.org bring together some of the Midwest’s most influential landowners for an all-day Ag Outlook Meeting, and it was my pleasure to join them recently. Todd Gleason and the other good folks at WILLAg.org did a great job on the event and were kind enough to get a video recording of my session, which you can view in its entirety below.
For those of you who don’t have 35 minutes to listen to the entire session, here are some of the major points included in my comments:
We currently have a two-tiered market for farmland in the Midwest. In about 20 percent of the midwestern townships, the farmland market is as strong as it’s ever been, and it will continue to be strong depending on who the major buyers and operators are in those individual townships. In 80 percent of the townships across the Midwest, we probably have experienced a 10-20 percent adjustment downward.
We’ve definitely seen some lower prices, but it’s simply an adjustment. Not many months ago, we had $6.50-plus corn. Today, we have a little over $4.50 corn. That presents a major economic adjustment to say the least.
POSITIVE FACTORS SUPPORTING FARMLAND VALUES:
Interest rates: I never dreamed we would be able to secure long-term financing for ag land with a number starting with 3. In addition, rates on deposits are frighteningly low.
California drought: California is a major disaster, which could be very positive for Midwestern farmland. It’s projected that in the San Joaquin Valley, there will be 500,000 acres not planted in 2014. This will be cotton, wheat, and corn that will not be planted.
Investor capital: There’s a great deal of capital readily available from the global pension industry, all of whom want to enter agriculture.
ANSWERS TO QUESTIONS FROM THE AUDIENCE:
Have I sold, or would I consider selling, any of my farmland?
Not one acre.
Would it be better to buy farmland now or wait until after a possible downturn?
With rates on deposits around .02 percent, I don’t understand why any sane person would have money on deposit when they could put it into something solid. It really doesn’t matter that farmland might be lower two years from here.
Would I invest in properties producing nuts (e.g., California)?
With this California water situation today, I would run. I would not put a dime in it.
Are cash rents are getting too high?
The percent of revenue from the farm going to the landlord has just gotten higher and higher, and quite frankly, I think it’s reached a crossroads where it’s unreasonably high. I believe cash rents will go down 15-25 percent looking into 2015.
What’s my prediction for Midwestern farmland prices in two, five and 10 years?
Two years from now, it will be maybe 10 percent lower. Five to 10 years out, it will be 25 to 50 percent higher.