Rise in land prices peaks; question now is whether they will head south
03/01/2014 11:35 AM
03/02/2014 8:03 AM
The run-up in prices for farmland and agricultural commodities looks to be over for now, an observer says.
The question now is whether prices will stabilize – or fall.
Kevin Dhuyvetter, professor in agricultural economics at Kansas State University, said there are big variations in the price of land across Kansas, making statewide generalizations difficult. Prices can range from $5,000 or more per acre in the fertile, well-watered northeast to half that or less in the arid southwest part of the state.
Because of the decline in prices being paid for corn, the highest-priced land “will probably go backwards,” he said. “Others will be fairly steady.”
The price of corn started rising in 2006 when ethanol producers began using more of it. At the same time, a growing middle class in places such as China and India began consuming more grain-fed protein, further increasing the demand.
The price of wheat, soybean and sorghum all rose from 2006 through 2012, especially as drought through much of the country cut yields.
However, the drought eased in 2013 in much of the country, and worldwide production of corn has more than filled the demand.
The price of corn went from a high of about $8 a bushel to $6 and then to $4.
“That’s really good by long-term standards but not anything that will support the kind of land values we’ve been seeing,” Dhuyvetter said. “It’s very hard to see them continuing to go up.”
He said $4 or $4.50 corn “might be the new norm for a while.”
Despite the steep fall in prices following huge increases in what farmers and investors paid for farmland, few predict an onslaught of foreclosures and bankruptcies.
For one thing, people haven’t borrowed as much money to buy land, and those that did are paying much lower interest rates.
“The land is being held in stronger financial hands,” Dhuyvetter said.
Also, because of oil and gas production in the southern part of the state, “there’s still a lot of money out there. That still has an impact on land values. If I’ve got a lot of cash and I want something, I’ll buy it.”
He noted that rural land near cities such as Wichita also generally carry high prices.
Prices for another big Kansas agricultural product – beef – have remained strong.
“The bigger concern for beef is that at some point, (prices) are going to have an impact on demand,” he said. “From a beef industry standpoint, I don’t think we want consumers to go away from it.”
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