Critical Window for Farmland Values

February 12, 2018 05:00 AM
 
Corn

Above-average crop yields created optimism for farmland prices last fall. That post-harvest bump combined with a short supply of land for sale and continued low interest rates have propped up values in many locations, says Randy Dickhut, senior vice president of real estate operations for Farmers National Company (FNC).

“In general, there is still enough purchasing power in the hands of farmers to compete for good land,” Dickhut says. “We are also seeing a small increase in 1031 tax deferred exchange buyers as they move to trade into different land or to diversify out of other real estate holdings and into cropland.”

But, land values face some serious headwinds. Current farm economics are not conducive to strength in the land market, as low grain prices are keeping overall farm income levels depressed, Dickhut explains. As a result, lenders are hesitant to lend money for land purchases.

“Cash flow and equity concerns of farmers could generate additional land for sale in the market as some producers liquidate either land or equipment to shore up their finances,” he says. “The magnitude of these additional land sales will probably be small and vary by region, but the potential for an increase in the supply of land on the market bears watching.”

Outside influences such as investor interest, changes in U.S. trade policy, unexpected consequences from tax laws and potential changes in the next farm bill could also send farmland values south.

“The next six months will determine the direction of land values,” Dickhut says. “Economic and financial factors will become more evident for producers and lenders. The factors and the outside influences will become better defined as we move through 2018.”

For the first time in the history of the survey (data collection began in October 2015), more producers expect farmland values to increase in the upcoming year than decline.

Here are state-level insights from FNC’s semiannual market update.

 

The Dakotas, Minnesota. Good to high-quality land in the three-state region is seeing steady to slightly higher values. “Farmers are interested in adding the right type of acres to their operations and seem willing to bid up to get the land purchased,” says Brian Mohr, area sales manager. Conversely, range land in western South Dakota has not seen the buying interest or strength in prices.

 

Eastern Corn Belt. Quality is king in the eastern Corn Belt. “Prices for good land are steady to slightly stronger when compared to the same time a year ago,” says Roger Hayworth, area sales manager. “The low supply of properties on the market helps support land values.” Farmers are the primary buyers of land in the region, but Hayworth notes, investor interest has increased.

 

Iowa. Despite reduced farm incomes, demand for high-quality cropland in Iowa remains strong. “Buyers of farmland are being more deliberate about their decisions, but farmers and investors are very interested in purchasing the right piece of ground that makes sense for them,” says Sam Kain, national sales manager. “Lenders are being more cautious in the amount of money they will lend on a land purchase, but there is still enough capital in the country to create demand for good land.”

 

Nebraska. Sales activity is high in Nebraska and good-quality land is selling well, but lower-quality cropland or grassland is struggling to find buyers, notes Paul Schadegg, area sales manager. “Some additional sales are expected before planting time from financially motivated sellers as the farm economy struggles with low grain prices,” he says.

 

Kansas, Oklahoma. The land market in Kansas and Oklahoma is slow, Schadegg reports. “There is less land for sale than normal and buyers continue to be more cautious in making purchase decisions,” he says.

 

Texas. The land market in Texas remains steady. “The diversity of land in Texas, the wider range of buyers and the varied uses for land all contribute to the land market being more stable here,” Schadegg says.

 

Washington, Oregon, Idaho. Location and quality drive values in these states, reports broker Flo Sayre. She expects to see increased interest in selling land from aging farmers and potentially financially motivated sales.  

Back to news


Comments

 
Spell Check

Zagnut
Eastern , NE
2/12/2018 08:44 AM
 

  Time will tell. Land market is irrational right now. There are investors out there willing to buy some ground, but their ROI is less than 3%. Value appreciation is not realistic right now. Capital gains with the new tax law is going to dictate a lot for 2018.

 
 
Craig
Kearney, NE
2/12/2018 05:51 AM
 

  Land prices are completely out of reason, at least 3X what current commodity prices can support. Recently, there was 500 acres of pasture listed for $1 million. It could support 80 pairs in a good year. If I sold all 350 of my cows, I wouldn't have had half the listed price. Then I would have had to buy back the 80 pairs, plus come up with $12,000 per year in property taxes. Or rent it out for around $24,000, while standing all of the taxes and normal upkeep. That my fellow Ag producers is not only unsustainable, it is insane. Interest rates are on the way up, at some point, land will crash back into reality.

 
 
C.K
bad axe, MI
2/12/2018 06:12 AM
 

  http://cnb.cx/2AJ4ghp check out this article on the China Saudi oil deal this will spell out what's really going on and where farmlands really headed. 70 trillion of debt is finally catching up take the time and watch the video .

 
 
Close