Farmland Barometer - January 2014

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Q & A

At Heartland Ag Group Ltd., we feel like the luckiest people on the planet - - to be involved with Agriculture. Thanks to all of you - - we are very active in the management, appraisal, sale, and acquisition of farmland throughout Illinois, Indiana and Missouri. Here are our thoughts on the current land market:

  • 2013 - $12,000 per acre (-5%)
  • 2012 - $12,750 per acre (+21%)
  • 2011 - $10,500 per acre (+31%)
  • 2010 - $8,000 per acre (+14%)
  • 2009 - $7,000 per acre (unchanged)

In the last five years we have been up 66% - well above the 6.5% normal average annual increase over the last 40 years.

Who's Buying the Land?
The farming community has had five prosperous years and actively reinvested their profits in neighboring farmland. Last year 75% of the land was purchased by farmers or their extended families (up from a 50% normal volume). Trust them - - they believe in our future.

Investors enjoy the returns to farmland (one of the best investments on the planet). Investors are seeing alternate places for their money as the stock and financial markets enjoyed an outstanding year. These folks believe farmland went up a little too quickly and are anticipating a small correction in values - - at which time they will resume their buying habits.

Are the Interest Rates a Factor?
Yes - - interest rates are a very prominent force in the land value picture. Long term interest rates have risen by 1% to 11⁄2% this year - - the ultra low interest rate era is over. Farm mortgage lenders cap their loans at about 50% of current values - - making significant down payments necessary. The outlook for interest rate changes is cloudy. Most of us are doubtful that rates will go up sharply from here (the economy isn’t strong enough to handle it). And - - the United States couldn’t afford to pay the interest tab on our huge national debt! Deflation is still a possibility.

The Farm Net Income Picture!
Remember - - farmland is what it earns - - and profits in the last three years have not kept up with the rising land values. We do see net farm income shrinking somewhat as yields return to normal levels and the corn and soybean prices come back from their lofty heights. We see farm profits falling by 20% in the upcoming year and cash rents coming under pressure as we look at the 2014 growing season. It will take a return of corn prices to $5.00 plus per bushel and soybeans above $12.00 per bushel to generate the profit levels we have experienced in recent years.