Orchard and specialty crop farmland outlook
Rising interest rates and a higher trending dollar could pull the value of orchard and specialty crop farmland lower over the next several years according to a new report from Rabobank International.
The report, called “Land Values Peaking Out—But Not Down,” concludes that the single greatest risk to U.S. agricultural land values is looming higher interest rates.
The rise in interest rates—and corresponding pressure on land values—is not expected immediately. But higher interest rates could push up the value of the dollar and reduce the export competitiveness of U.S. fruits, vegetables and nuts. That could lower land values by double digit percentages within several years, according to the Rabobank report.
Rabobank Food & Agribusiness Research and Advisory senior analyst Sterling Liddell, author of the report, said current Federal Reserve policy seems to indicate no significant increase in interest rates until 2014 or 2015.
Late September interest rates for 10-year treasury notes are about 2.65 percent. The worst-case outlook for the rise in 10-year treasury note interest rates would see them top out at about 6 percent, according to Liddell.
The dollar has shown volatility and gained strength against the Mexican peso and Argentina real, Liddell said. “It’s been volatile, but over time we would expect to see increasing interest rates increase the investment in U.S. dollars, which would drive up the value of the U.S. dollar.”
The Rabobank report predicts a decline in farmland values in the central U.S. of 15 percent to 20 percent over the next three years, while the decline in land values in the Southeast and the western U.S. won’t be as severe. Land planted to grain and oilseeds is most susceptible to decline, the report said, as rising stocks are lowering prices.
“While an increase in interest rates will have a similar impact on agricultural land values throughout the country, the amount of change will depend on the type of crop production and proximity to urban areas,” he said. “The changes seen in land values in the West, especially those in California, should be less dramatic than that of the rest of the country,” Rabobank senior analyst Vernon Crowder, report co-author, said in the report. “This is due in large part to the diversity of crops grown in the region.”