Volatility seems to be the only consistent piece of commodity markets lately. The roller coaster keeps agricultural producers on their toes while trying to balance out their profits and losses. The volatility in grain markets also makes it difficult to predict land values. Ag producers looking to expand their operating acres will continue to have a difficult time planning as we hope to keep up with the trends affecting the markets.
How long can the higher prices last for commodities? There are major factors that we continue to keep an eye on. First, the Ukraine and Russia conflict keep the uncertainty in global markets alive. Ukraine has more than 102.5 million acres of agricultural land that cover 70% of the country. Ukraine ranks globally with sunflower seed, corn, barley, soybean, and wheat production. According to the country’s farmers, their biggest challenge is finding the labor to get crops out of the field. Next, the United States is maxed out in terms of acres to bring into production. There is CRP acreage, but it is unlikely that we will dip into those acres. To meet world demands, acreage will have to come either from the Black Sea or from Latin America. Brazil is made up of 868 million acres, 7.5% of which are currently in crop production. In the Black Sea region, about 22 million acres could be converted into farmland. It’s predicted we won’t reach peak world farmland until about 2060 or 2065 when the world will heavily rely on yields and production.
Land acres remain valuable and in the real estate industry, we continue to see sales to out-of-state buyers with the needed funds to purchase the costly acres. Higher interest rates are starting to come into play fueling urgency for those who want to sell as well as for those who want to buy. However, people are still utilizing a lot of cash that has offset the potential negative influence of higher rates. Farmers and investors recognize farmland’s performance as an asset class because of its stability and tangibility. Time will tell if the higher prices will prompt more landowners, including estates, trusts, and recent inheritors to sell in the upcoming months.