Land market slows as higher farm costs bite
2012-04-23 11:53:02
The rate of farmland price growth in the US has "slumped", despite increasing interest from non-farm investors, as higher agricultural costs bit deeper.
A farmland index compiled by Creighton University came in at 69.4, down from 78.7 in March, and the weakest figure for six months.
The slowdown was particularly notable in the states of Missouri, Nebraska and Wyoming, where index levels fell below 55, if remaining above the 50 mark which denotes a flat market.
The easing in the market defied increasing interest in agricultural land from non-farm investors, who accounted for an estimated 21% of purchases.
"It is clear that non-farm investor interest in purchasing farmland is growing," said Ernie Goss, the Creighton economist in charge of the survey.
Fuel-price impact
However, Professor Goss - who has long voiced concerns over the extent of farmland price rises, warning last month that rising interest rates and softer crop markets would "take some of the air out of the farmland price bubble as early as mid-year" – flagged setbacks to the market from higher costs.
"We are seeing some signs that higher energy and fuel prices are slowing [economic] growth for areas dependent on agriculture," he said.
"The Federal Reserve's cheap money and low interest rate policies continue to support the agriculture sector, including farmland and farm equipment.
"However, higher energy prices and somewhat slower global growth are taking some of the air out of the farm sector."
'Have to be very bullish'
The comments follow forecasts from land experts last week, at a summit in Washington, of a slowdown in growth in farmland prices which, on US Department of Agriculture, have doubled over the last decade.
Jason Henderson, of the Kansas City Federal Reserve Bank, unveiled a forecast of "slower growth in farmland values".
Ken Keegan, the chief risk officer at agriculture lender Farm Credit Services in Omaha, said that the market had "reached levels where you have to be very bullish" on farm profitability to justify price appreciation.
Indeed, Purdue University economist Brent Gloy said that prices were reaching levels which required corn prices of $5 a bushel to justify – a historically high level.
"The potential to get ahead of ourselves is high," he said.
"My sense is the farmland market is, hopefully, ready to slow down."