Two recent articles on the subject of farmland prices and rental rates showed the effect that lower grain prices can have on farmland values.
In a recent farmdoc DAILY article, University of Illinois Extension economist, Dr. Gary Schnitkey, stated that 2015 cash rents have “decreased between $20 and $25 per acre from 2014 levels”. He went on to write that there will be “continued pressures on cash rents … in 2016 unless significant increases in prices occur from their current levels.” His research also pointed out that “unless non-land costs decrease, (corn) prices must be in the high $4.00 range before downward pressures are not placed on average cash rents.”
In the May issue of AgLetter, David Oppedahl, senior economist at the Federal Reserve Bank of Chicago, wrote cash rental rates within his district “were down 8 percent for 2015 compared with 2014.” This is according to a survey of the bankers within the Seventh Federal Reserve District. As far as the future, “almost half of the survey respondents predicted farmland values to decrease in the second quarter of 2015, while less than 1 percent expected farmland values to increase and 51 percent expected them to be stable. These results were based on expectations for lower income from crop operations, as well as expectations for tighter profit margins from dairy and hog operations, in 2015 relative to 2014.”
What does this mean for local agriculture? The lower prices for grain in our area, where corn and soybean are the dominant uses for our farmland, translate into lower returns to farmers and farmland owners. Add to that crop input costs have not declined and this is adding to the profit margin squeeze of our area farmers.