How High Can Farmland Prices Go?
Prepare for a dynamic farmland market in 2022
The supply-and-demand equation for farmland has shifted. For the past few years, a low supply was met with weaker but adequate demand. So, prices were supported and somewhat steady. In 2021, higher commodity prices and inves-tor interest boosted demand and supply followed suit.
“Over the past 12 months, most areas of the Grain Belt have experienced an increase in the amount of land sold,” says Randy Dickhut, senior vice president of real estate operations for Farmers National Company. “A number of states have seen a 10% or more bump in the number of transactions.”
In 2021, R.D. Schrader, president of Schrader Real Estate and Auction Co., says his firm had twice as many sales above $10,000 per acre as they did in 2019 and 60% more sales above $10,000 per acre than 2020.
“One two-week stretch, ending October and beginning November, provided four sales over $13,000 per acre in In-diana and Ohio,” he says. “It was not unheard of for land to bring 150% of what it had been appraised for in the last year, especially if recreational land was included.”
MORE RECORDS AHEAD?
During the second half of the year, it seemed like every sale was a new record, says Doug Hensley, president of real estate services for Hertz Farm Management. Will this incredible price strength continue?
“In 2022, we may see some new records, but it won’t be at every sale like it seemed to be in 2021,” Hensley says. “I expect the volume of sales to moderate, as some demand has been satisfied. Plus, in 2022, we’re seeing smaller cash flow margins and the potential for higher interest rates, both of these are headwinds compared to 2021.”
At this point, if the fundamental factors supporting land prices continue in the current direction, the market should be firm to somewhat higher, Dickhut says.
“But if any of these underlying factors change or unexpected world or national events come about, the land market could pause and even change direction,” he says. “For now, the outlook for the land market is positive as farmland continues to be a safe, long-term investment.”
Here are additional 2022 outlook stories:
2022 Soybean Planting Projections are a Moving Target, Prices will Whipsaw
Drought and Demand Drive the 2022 Wheat Outlook
2022 Outlook: Why Corn’s Sweet Spot May Be Below $6 in the New Year
