Net farm income declined in 2018 and is expected to decline slightly again in 2019, as commodity prices have come down and stabilized from record levels in prior years. Net farm income is forecast to be $65.7 billion by the end of 2018, a decrease of 13 percent from 2017. Net farm income has weakened considerably since its record level in 2013.

U.S. agricultural exports have been one of the fundamental driving forces in the profitability and stability of the farm economy, with export sales increasing slightly in 2018 by about 2.7 percent. The current trade stalemate with China and tariffs on agricultural products are a cause for anxiety in the farm sector. It is hopeful that this will be a short-lived period of pain that will yield long-term gains for the agricultural sector. While exports declined in 2009 to $96.4 billion due to the global financial crisis, current USDA forecasts call for exports to reach $144 billion in 2018. Farmland values were up slightly in 2018. The average value of cropland, as reported by the USDA, has increased by 173.5 percent over the period from 2001 to 2018, from $1,510 per acre to $4,130 per acre.

Productivity of U.S. agriculture continues to rise. Gains in productivity have also been one of the driving forces in U.S. agricultural prosperity. The development of new technology has been the source of most of the improved productivity. Examples of new technology would be GPS-based farming systems and improved plant genetics resulting in higher yields and reduced chemical usage.

While income returns to farmers have declined since 2013, there is no evidence of any significant financial stress in the U.S. agricultural sector. The overall strength of the farm economy, with solid farmland values and income returns, provides little, if any, motivation for farmland owners to liquidate their land holdings. Moreover, there are very few alternative investments that offer equal or more attractive long-term potential returns if one were to sell farmland.

When the absence of any significant financial stress in the sector is added to this, the result is very few attractive farmland buying opportunities. Investors seeking to deploy capital into farmland must be patient in this challenging market.

This article was excerpted from the farmland section of the U.S. Real Estate Outlook 2019 report from UBS. Read the complete report at this link: https://tinyurl.com/y558ajyy