Used Farm Equipment Values More Vulnerable Than Farmland
U.S. agriculture could dodge the long-feared collapse in farm real estate prices this commodity cycle, suggest economists, but some cautioned another bubble may burst: the value of used farm equipment.
“Land values haven’t seen near the pullback that everyone predicted,” observed Bruce Sherrick, director of the TIAA-CREF Center for Farmland Research at the University of Illinois, during conversation at a recent Farm Foundation meeting.
He said the moderation makes sense, given that farmland investors keep a long-term perspective on value despite blips in commodity prices.
“Land investors’ expectations of future income are more like climate, not weather,” Sherrick said. If it rains too much one season, it doesn’t mean the climate has changed, he said, any more than an abrupt correction in commodity prices necessarily undermines farmland values with a 30- to 50-year history of double-digit appreciation.
The biggest bubble ahead isn’t farmland, but farm equipment, others at the meeting said.
Today’s highest-risk operators are younger farmers who didn’t have a chance to pad their net worths with farmland appreciation, and who rent the bulk of their operation, said Mike Jacobson, chairman and CEO of NebraskaLand Bank of North Platte. If they can’t renegotiate more reasonable rents for 2017, all they have left to sell is farm equipment.
“It will take a much longer sustained fall in overall farm incomes to drop farmland real estate prices, but pain in the equipment business could be significant,” Jacobson said. “There’s not much down market for some recent-model large equipment. Only the biggest operators want that scale, but they are more likely to opt for new than used. The reckoning we see in 2017 won’t be for farmland, but for used equipment.” Source: DTN