Welcome to 2020!

By Howard Halderman

01 /04 /20

Is your vision of the upcoming year clear or is it a bit murky like mine?  We ended 2019 on a positive note.  Land values increased or held steady across our region for the year.  Other states in the Midwest report slight increases of 1-2% as well.  Cash rents remain largely steady for 2020 and the land market in general is stuck in the sideways channel that began in 2016.  In many ways this is good news as farm incomes continue to struggle at much lower levels than 2014 and earlier.

As we think about the new decade and more specifically this coming year I continue to believe farmland values remain a function of three major drivers.  They are farm incomes, interest rates and supply of farms for sale.  Let’s look at each one and how it might impact land values this year.

Farm incomes:  USDA predicts net farm incomes to exceed $77 B this past year.  Much of that is due to the Market Facilitation Payments and better than expected yields in spite of a delayed planting and harvest seasons.  This is a large increase off the low of $61.5 B in 2016 and higher than the past three years.  This positive movement is the main reason farmland values increased slightly last year.

Interest rates:  the Fed lowered rates three times last year and at this time in early 2020 they appear pleased with the current interest rates levels and no changes are planned in either direction.  As a result of the movement last year, long term interest rates dropped and this remains a bullish factor in farmland values and farm incomes.  The Chicago Fed Survey in October reflected long term mortgage rates of 5.08% across the district, their lowest level in a year.

Farmland Sales:  The supply of farms for sale remains below normal continuing a trend that began in 2013.  Limited supply continues to be supportive of land values in early 2020.  Sales did tick up slightly in 2019, but still well below the historical average number of sales.

Our prediction for farmland values is driven off farm commodity prices.  If phase 1 of the Chinese trade deal is approved as well as the passage of USMCA one can make a more bullish argument for commodity prices.  Of course the opposite is true if these trade deals fail to materialize and we plant a large number of acres this spring.  Here in early January, based on the data we have today and assuming an average crop, farm incomes likely remain steady as will land values.  Any reduction in commodity prices that is pervasive for much of the year will cause a retraction in values. My sentiment is that land values remain in this sideways channel near term until more supply comes to the market and/or commodity prices drop well below cost of production for an extended period.

We wish you the best in 2020!  Each of the past three years the markets presented growers an opportunity to capture prices above cost of production, at profitable levels.  If that occurs again this year, be prepared to take advantage at some level – the higher prices will be fleeting based on past history.

As always call Halderman if you have any farm related questions.  Our goal is to Help!