Kohl: Land Value Preventing Deeper Downturn in Ag Economy

It’s a comparison many in the Ag community have heard, or even made themselves.  How does the current down turn in the farm economy compare to the devastation of the 1980s?  Ag economist at Virginia Tech, Dr. David Kohl says there are many difference between the 80s and today.  One of the most notable differences, land values.  Kohl notes land currently makes up 80% of the American farm balance sheet, and that land has not lost its value.

“And now, we are six years in this downturn, and it’s going to be really interesting to see how much longer, this refinance cycle continues.  In other words, taking operating loss and stretching it out to ten to 20 years, using the land as that tool.”

Kohl noted that trend of leveraging land to finance operations may be coming to an end.  He said the key is going to be when banks or farm credit unions say no to the refi, meaning some of the land needs to be sold.

“It’s all about supply and demand, you get too much supply and not enough demand, then that’s when you’re going to start to see some declines in land values.  And this is what I’ve nick named this renewal season “Renewal Season on the Brink” in other words, if they don’t get the refis then we could start to see that core asset called land start to decline in value,” Kohl added.

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