by Ken Root & Whitney Flach
A new report from the Rabobank Food & Agribusiness Research and Advisory group finds that order for U.S. ag commodity production activity to remain economically viable, land rent must decline. The report, “The Land Value Wave Dips: Land Values Set to Decline Further, Despite Sticky Rental Prices,” explores the impact of low commodity prices on land values and rent prices..
Sterling Lydell is Senior Vice President for food and Agribusiness Finance for Rabo Agri Finance. Lydell, as a banker, believes land valuations and rental rates need to be decreased over the course of the next two years to compensate for decreased commodity prices and tighter profit margins.
Lydell says, “Agriculture has gone through a super cycle. The cost of inputs have come up, and the cost of land, particularly the cost of renting land has increased to the point that it is significantly raised. This is creating a very negative scenario for a lot of farmer’s across the united states Sterling Lydell Full Interview.”
The result of this oversupply has been to drive agri commodity price levels below break even. After two years of economic losses at the farm level – which resulted largely from the significant drop in commodity prices – the cost of renting land remains sticky and unsustainably high.
The reduction in price, for farmers to return to profitability, must be thirty to sixty cents per expected bushel of production. On Iowa farmland, expecting two hundred bushel yields, the drop should be $25 to $30 per acre per year. According to Rabobank, in 2017/18 and moving forward, rent values need to begin dropping in order to balance with lower commodity prices over the long term.