Recent improvement and confidence in the general economy has increased demand for certain land classes but a recessed farm commodity market has diminished the income producing capability of that same land. There are many variables contributing to current land value trends.
Commodity prices hit their lowest point in recent memory and relief isn’t in the forecast for 2017. It’s a cycle most farmers have seen before and most understand that sooner or later the market will rebound. In November 2016 beef prices were slowly starting to stabilize but given the number of beef currently held for 2017, prices are likely to remain under pressure, lower cattle prices are starting to spill over into the retail beef market. Obviously, the more production the less value the product will have. Wheat is another crop that didn’t produce the big returns that some produces were expecting. Many states produced record breaking crop yields in 2016, but those larger yields led to lower prices.
The strong dollar and the prospect of oil remaining rangebound in the $50 to $60 area threatens further property values in many agricultural communities. One concern very few have discussed is a potential trade war with China, the second largest market for U.S Agricultural Exports, this could impact the commodity market.
We conclude that low agricultural commodity price futures will impact the profitability in the agricultural sector and prices will likely continue to apply downward pressure on cropland values in the year ahead. The strong dollar and the prospect of range bound oil prices could add additional land value pressures. These conditions point to an increased probability of a possible land price pull-back sometime during early 2017.
The market is in a “Show Me Stage” and only time will tell what the commodity, oil and gas, and equity market trends will have on agricultural property values. 2017 could be the year buyers need to seriously consider an investment strategy and purchase agricultural properties during this potential downturn.
Steve Williams
Broker, Williams Ranch Group LLC
