Drivers of land prices: But how fast, how far?
What would make farmland prices continue to rise? The ag professionals listed a half dozen reasons:
• Strong demand for corn from the ethanol industry because of biofuel mandates
• Strong soybean export demand
• 2011 U.S. corn and soybean crop that is average or below average
• Moderate increases in input costs for corn and soybeans, keeping crop production margins well above historic averages
• Low long term interest rates
• Little change in the amount of land available for sale
And what would influence land prices to either remain steady or decline in value:
• Sharp decline in corn and soybean export demand
• Sudden change in the U.S. policy away from providing biofuel subsidies and mandating usage levels
• Sharp rise in interest rates because of a downgrade in the credit rating of U.S. government debt obligations or increased inflation fears
• Exceptionally large 2011 corn and soybean crop
• Sharp rise in crop input prices reducing crop production margins
• Further slowing of world growth because of sovereign debt problems, including the U.S.
• Strong supply response resulting from capital investments in agricultural production stimulated by high grain prices
• U.S. recession brought on by U.S. debt problems or default
• Some combination of the above or some unknown development
Demand for farmland continues upward, both in price and in intensity of demand by farmers. This is driven by high crop prices, expectation for that to continue, low interest rates, and the potential for land values to inflate. Agricultural professionals say there is a 59 percent chance for land prices to be higher five years from now, and only a 19 percent chance for prices to be less in five years. Drivers of land prices are many, but major dynamics include the ethanol industry, soybean export demand, long term interest rates, and changes in the amount of land available for sale.