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Booming Agricultural Land Values Are Not In a Bubble

Booming Agricultural Land Values Are Not In a Bubble

Research shows that values likely will adjust down moderately over next decade.

Agriculture land prices in the U.S. have increased steadily over the last decade, leading experts and landowners to question whether the high values are sustainable. The short answer from the Rabobank International Food & Agribusiness Research and Advisory group is that the land value rates are not a speculative bubble, but a decrease in land values over several years is a definite possibility.

According to the report, "Blowing the Farmland Bubble," agricultural land value has grown on average between 20% and 70% during the past five years.  The increase in the value of crop land since 2005 has been a combination of increased commodity prices, low interest rates and a limited supply of land available for sale.

The research does show that current trends are being driven by fundamental economics and that fact that most of the buying is being done by long-term investors.  Co-author Sterling Liddell, vice president, FAR, says a crash is unlikely and if land values do adjust down over the next three to seven years, the reduction in value will be moderate and not a crash.

"Drivers of bubbles tend to be buying and selling by speculators," Liddell said. "The increasing presence of farmers on the buyer side of agricultural land combined with a tight supply of land available for sale provides significant evidence there is not currently a speculator-fueled bubble."

Another year of strong margins combined with the anticipation of continued tight supplies should drive land prices higher for at least one or two more years according to Liddell.  However; on a longer term basis he says the probability of land values adjusting negatively outweighs the possibility of a continued upward trend.

Over the next decade some of the largest risks that may influence farmland value include the trend toward absentee farmers as land owned by aging farmers changes hands to non-farming heirs; interest rates; global commodity supply and demand; water availability and, new environmental restrictions; reduced farm margins; biofuels policy and inflation.

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