However, in the Southern Plains, Clift says the price of corn and corresponding cropland values don’t seem to affect ranchland prices. “You don’t buy ranchland to make a return like you do a corn farm,” he says. “So, interest rates are going to impact that more than the price of corn.”

And there, experts think that long-term interest rates will begin to increase. (We’ll discuss this topic in the February issue.)

What’s more, because of the drought and the heavy destocking it caused, he says the ranches that do sell in his area are bought by ranchers from other regions. “If you list a ranch in northeastern Colorado and expect it to trade to somebody from northeastern Colorado, those ranchers aren’t the buyers. The buyers are ranchers from other places,” he says.

Usually, according to BEEF magazine’s ranch real estate analyst Michael Fritz, those buyers come with cash in hand. And where they look to buy will influence regional land values.

In parts of Texas, where oil shale development is underway, and in the Dakotas, where the Bakken play is ongoing, oil and gas income is likely to boost pasture values more in percentage terms than cropland values in areas where pasture is lower-valued, he says. “It’s put a lot of money in people’s pockets, and is really driving ag land values far and wide of that area.”

“The other wild card is drought,” says Fritz, who publishes the Farmland Investor Letter. “If drought persists in the Southern Plains, pasture rates in the Central and Northern Plains will rise as cattlemen seek to place cattle where there is grass.”

But all in all, the outlook for ranchland values is positive. “Fundamentally, the value of land is derived from the value of future return prospects,” Fritz says. “For pastureland, that’s typically livestock, and the margins for cattle have been pretty strong. It puts cattlemen is a stronger financial position to compete for grass if they want it.” 

 

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