U.S. farmland values have remained strong this summer despite falling crop prices, but that could change heading into the busy annual auction season at year's end, auctioneers say.
"I'm surprised how strong land values have been," said Randy Hertz of Hertz Farm Management in Nevada, Iowa. "We're actually seeing a slight uptick on the price of land, particularly in livestock areas."
Grain prices, led by corn, fell to four-year lows this week on the outlook for a record harvest. This can put pressure on the price of land and squeeze bank accounts secured by it, since land is the main collateral.
But Jim Farrell, head of Omaha, Nebraska-based Farmers National, the largest U.S. farm management firm, said he also was surprised crop land prices had stayed in line with or improved from last fall. In Sioux County, Iowa, he said, one farm his firm sold last month went for an area record of $20,400 an acre.
"We may see some deterioration when we get into the fall, but we certainly haven't seen it yet," said Farrell, whose firm sells farmland across the Corn Belt.
Cash corn is now below $4 a bushel at some Midwest elevators, a huge drop from $7 to $8 in July 2012. While that is bad news for grain planters, livestock producers are loving it. They have also cheered as meat prices soar to record highs this summer during grilling season.
So rangeland has been selling particularly well in the past few months, in some instances at all-time highs, auctioneers said.
The resilience of land prices, always led by farmer demand, may be tied to long-term bullishness about demand for U.S. grain and meat exports.
But experts say sub-$4 corn will pressure farmers' bids in land auctions this fall and lead land owners to reduce rents. More than half the 250 million acres of corn, soybean and wheat land in the United States are rented.
"If we're going to see some pressure, it's going to be on cash rents for 2015," Farrell said.
"Overall, 2015 returns are projected at the same levels as 2014 returns, which are considerably lower than returns from 2010 through 2013," Schnitkey said. "These lower returns signal the need to reduce 2015 cash rents."
For productive central Illinois land, Schnitkey estimates profits of $245 an acre for corn in 2014, down from $384 last year. For 2015, his number is $251.
For soybeans, he expects profits of $241 an acre in 2014 and $225 in 2015, compared with $429 last year.