Rabobank: Decreasing commodity prices will slow farmland values
“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,” said Crowder. “This is due in large part to the diversity of crops grown in the region.”
Orchards, vineyards and irrigated land in the Western U.S. have seen extreme increases in land values due to strong market prices and growing export demand. Interest rates will be the primary determinant of any decline in the value of farmland, but the strength of the U.S. dollar is also important due to the rate of exportation for many commodities produced in the Western U.S. A stronger U.S. dollar will negatively impact exports.
The Southeast U.S. has seen a modest appreciation of irrigated cropland, as it weathers a severe drought. Florida in particular is in the midst of a difficult era, due in part to weather, disease, increased competition from imports and influence of the struggling housing market leading to a lack of appreciation of farmland value.
Expected increases in interest rates and declines in major cash commodities will lead to a difficult medium term, especially if commodity price declines lead to a reduction in land rents.