Although farmland prices are slipping across the heartland, a limited supply of high-quality land is making that category extremely valuable at auction. Both farmers and local investors are paying attention, says Mike Walsten, editor, LandOwner.
"If the right farm comes along, they will be very competitive for it," he explains. Farmers remain the dominant buyers in both the western and eastern Corn Belts, though investors are getting involved particularly on the eastern side.
"It’s the local investors that understand the community, probably grew up on the farm and like land portfolios," Walsten notes. For example, a recent record sale by investors in central Illinois drew $13,700 per acre.
Still, prices continue to flatten or turn down across the country—though he points out farmers are better positioned to handle it than in the 1980s thanks to lower debt levels. The downturn is a reflection of lower commodity prices and projected lower net farm incomes. For example, while an Iowa State University survey found Iowa farmland values up 5% from November 2012 to November 2013, Farm Credit Services of America reported values off 3.3% during the fourth quarter of 2013 on benchmark farms.
For the short run, Walsten projects:
- Values declining 10% in 2014 based on existing conditions and expectations
- Likely more price weakness in 2015 if profit margins weaken further this year
- Stable to softening demand for top-quality land, with weaker demand for poorer quality land
- Increased investor interest when higher returns are possible
- Weakened demand for recreational ground amid a weak economy
- Low volume will support prices on the decline
For the long run, Walsten expects:
- Restraint in adding debt will allow producers to work through a two- to five-year correction
- Adding debt to maintain spending will create problems
- Biggest risks will include rising interest rates in the second half of 2015 or later; limited working capital; political interference such as Renewable Fuel Standard changes; and China
- Farmland will remain among the safest and best long-term investments