US farmland prices have fallen for the first time in four
years, undermined by weakness in agricultural commodity prices evident in a
drop in wheat prices to 18-month lows this week, while corn stands near three-year
A farmland price index compiled by Creighton University
weakened to 47.0 this month, from 54.3 last month, and below the 50.0 level
which indicates a static market.
."This is the first time in four years that the
farmland-price index has moved below growth neutral," said Creighton economics
professor Ernie Goss.
"As agriculture commodity prices have moved lower, so have
'Razor thin margins'
Indeed, the decline, the first since December 2009, comes
amid growing ideas of the dent to farmers' spending power as grain prices fall
well below historic highs
"If you haven't done so yet, get your pencil out on 2014
crop breakevens. Margins will be razor thin," Mike Mawdsley at Iowa-based broker
Market 1 said.
Professor Goss said: "Over the past year, grain prices have
declined by roughly 35%," adding that this decline has also "significantly
reduced farmers' willingness to purchase agriculture equipment".
A farm equipment market index run by Creighton, which takes its
data from states from Illinois to Wyoming, fell by 4.0 points month on month to
44.3, the lowest reading since August last year.
'Fasten your chin
Of lenders surveyed by Creighton, 81% viewed lower
agriculture prices as the top threat to the rural economy for next year.
Jeff Bonnett, president of Havana National Bank in Havana, Illinois,
said that next year "will be interesting, as input costs have not come down in
relation to commodity prices.
"Fasten your chin straps firmly and hold on, it may be an
The farmland market was weakest in Minnesota among states
surveyed by Creighton, with an index figure of 40.9, with Kansas, Nebraska and Illinois
among other states showing declining prices.
However, prices are still growing in the likes of North and
South Dakota, in Colorado and Missouri.
And the market weakness follows a sustained period of price
rises which has taken values to record highs, up more than 70% in the past
three years, according to US Department of Agriculture data.
The extent of the price gains has provoked concerns of a
collapse in values ahead, as seen in the 1980s after the last strong rally,
when soaring borrowing costs wrong-footed many farmers.
However, many observers feel that, with US interest rates expected
to remain low, the downside to land prices is limited.