DES MOINES — There are lessons to be learned in today’s economic numbers regarding agriculture: that land values remain relatively strong, farmers appear optimistic, and good management and marketing are becoming more important.
Those are some of the messages Jim Knuth talked about during the Jan. 25 Land Investment Expo in Des Moines. Knuth, senior vice president at Farm Credit Services of America, told attendees at the conference that one of the surprises of the last several years is land prices have not dropped as far as expected.
“Two or three things stand out (in regards to land prices),” Knuth said.
One is that land prices have not dropped as far or as fast as commodity prices. While most analysts expect land values to continue to decline gradually, Knuth said farmers continue to buy land.
That leads to another point, which is that analysts can no longer say land price changes are simply a matter of supply. The number of farms hitting the market in 2018 was in line with historical averages. Farmers are simply continuing to buy land.
There are still farmers with low debt loads who are able to buy land, and those farmers have some level of optimism that buying land is still a good idea.
This could also be a matter of lessons learned from the 1980s, when debt problems pushed land values dramatically lower. Knuth says both farmers and lenders appear to have learned lessons from that experience and, as a result, were in a better position this time around.
He expects local capital and local investment to continue to drive the land market, as farmers tend to look at land as a 20- to 50-year investment as opposed to a one- to five-year investment.
“There’s obviously some future optimism there,” he said.
Of course, there are other issues facing farmers. Interest rates have gradually climbed in the past year or two. Knuth said he expects variable interest rates to be more stable in 2019 compared to 2018. However, there may be some upward pressure on long-term interest rates as 2019 unfolds.
As for commodity prices, it’s no secret the corn outlook is better than the soybean outlook for 2019, but the current trade war isn’t helping the grain markets either. Those trends will continue to put some economic pressure on farmers. And that in turn means that management will continue to be important.
“Farm Credit Services of America is the largest agricultural lender in the state of Iowa and the upper Midwest,” he says. “So we have an extremely unique view.”
That view shows one very definite trend.
“It’s how you run your operation,” Knuth said. “It’s not the color of your machinery. It’s not the brand of seed. … It’s not really production.”
Most Midwestern farmers are very good at producing a crop. The thing that separates the most-profitable ones is good management and marketing, he said. That isn’t likely to change in the near future.
With that in mind, Knuth said farmers need to take a close look at their business operation. Those who are struggling need to consider how to improve their management and marketing, whether that means hiring help or educating themselves or simply changing their priorities day to day.
They can’t control China or other trade partners. They can’t control the weather. They can’t control world political or economic trends. What they can control is their own farm business, Knuth said.