Farmland values in the U.S. Midwest will continue to increase but at a slower pace than this year, Michael Duffy, an Iowa State University agricultural economist, said Wednesday.
"The rate of increase is going to slow, and barring major changes, we shouldn't see a drop, at least not over the next eight to 24 months," Duffy said in an interview at an agricultural banking conference in Indianapolis. "If you look at the futures market and oil prices, and so forth, they all seem to indicate a level field, if you will."
The average value of an acre of U.S. farmland climbed to a record $2,350 in 2011, from $737 in 1980, according to Department of Agriculture data. The U.S. Department of Agriculture has projected farm income this year at a record $103.6 billion.
Land values will fall if commodities and farm earnings drop, Duffy said. "It's hard not to be optimistic when you have record or near-record incomes, but it's also not very prudent if you aren't cautious" amid risks to the economy, he said.
As of Wednesday, the Standard & Poor's GSCI Agriculture Index of eight prices had dropped 12 percent this year.
Farm income will "be off" in 2012 because commodity prices have moderated and input costs have climbed, said Duffy, who has been an agricultural economist since 1980.
The value of farmland in drought-stricken regions of the U.S. may drop, he said. More than 41 percent of a six-state region in the South is experiencing "exceptional" drought, according to the U.S. Drought Monitor.
Land rents are rising and may gain 20 percent in Iowa, Duffy said. Other Midwestern states such as Indiana and Illinois will see similar increases, Duffy said.
Rent divided by land value is at the lowest on record, prompting landowners to increase fees, Duffy said.
Lenders should not develop "unbridled exuberance" for the farm economy, Duffy said. The European fiscal crisis and the level of debt in the U.S. trigged volatility in the economy, and a "perfect storm" of negative events may send land prices lower, he said.
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