There are plenty of reasons to be optimistic about continued strength in future farm real estate values, especially on a short-term basis. Farmers are poised to have another profitable year in 2012, which should create continued interest in land purchases. Long-term interest rates remain quite low and demand is quite strong for medium- to high-quality farmland in most areas. Total volume of land sales was down in 2011 compared to previous years. Rapid increases in cash rental rates for farmland have also made purchasing land more viable compared to renting additional land.
On the flip side, there are also reasons to be more pessimistic about the future farmland values, especially beyond the next 12 months. The prospects for corn and soybean prices later in 2012 and beyond appear much more questionable, crop input costs are fairly high, and profit margins in corn and soybean production are likely to get much tighter in the next few years. These economic challenges in the farm sector are likely to cause farm operators to become much more conservative on land purchases, compared to recent years. There is also potential for higher long-term real estate interest rates in the future, along with an increase in the amount of land being offered for sale, both of which could soften future demand for farmland.
Editor’s note: Kent Thiesse is a former University of Minnesota Extension educator and now is Vice President of MinnStar Bank, Lake Crystal, MN. You can contact him at 507-726-2137 or via e-mail at email@example.com.