In its latest report, Land Values 2014: At the Tipping Point, Rabobank’s Food & Agribusiness Research & Advisory group warns that after 12 years of following fundamental drivers upward, land values may not follow those same drivers back down which may create an ‘asset bubble’. For more than a decade farmland values climbed because of low interest rates, high commodity prices, and tight supplies of land. However, commodity prices are falling and with forecasts for large corn and soybean crops, commodity prices will only likely fall further. Higher interest rates will mean land values will need to decrease in order for mortgages to remain competitive with rental rates. This scenario is expected to play out with the most ramifications in the U.S. Midwest region. Indiana, Illinois, Iowa, North Dakota, South Dakota, Nebraska, and Kansas all recorded land value increases of more than 100% between 2005 and 2013 with North and South Dakota both recording increases of more than 218% and Nebraska posting the largest increase in land values at 242%. Rabobank expects farmers to become more conservative when considering investing in land and predicts that interest will plateau.
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