U. S. Agricultural Real Estate Trends: 1994-1999

Executive Summary: Agricultural real estate values remain stable. The positive national trend reflects steady improvements in general agricultural productivity and growth of land values in line with the U.S. inflation rate. Studies conducted by the United States Department of Agriculture (USDA) for the period from 1994 through 1998 provided the historical trend information on agricultural real estate values. Information for 1999 was obtained from the Farm Credit System’s (FCS or System) chief appraisers to validate current trends in values, land rents and sales activity. These appraisers are accredited professionals and actively involved in the System’s current appraisal processes. The System’s chief appraisers indicated no significant decline in average agricultural real estate prices or land rents, but there is a general decline in the number of farm land sales. System appraisers reported that steady consolidation into larger, more efficient farm units and the significant growth of non-farm interests in agricultural real estate were additional factors supporting continued stability. Each of these factors is stronger today than they were during the 1980s, when agricultural real estate values plummeted. However, current low commodity prices could place downward pressure on agricultural real estate values and thus increase the risk in FCS institution portfolios by reducing farmer equity and tightening the loan-to-collateral margins. This downward effect will be most pronounced in those areas or regions where non-farm influences are at a minimum. However, lending practices have evolved substantially since the 1980s and the overwhelming majority of FCS institutions have written loan underwriting standards that require loans to have adequate cash flows, sufficient equity, and reasonable margins for future adversity. While loan-to-collateral ratios are still measured and included as part of most underwriting standards, this is seldom the only factor considered for loan approvals. In addition to these sources, the Federal Government’s recent approval of $8.7 billion in additional financial assistance to farmers will help maintain stable real estate values.