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Farmland Supply Overshadowing Demand

08:00AM Feb 06, 2019
Midwest farmland

The basics of supply and demand are playing out in the farmland market. For now, supply has the edge. 

“At this time, there are enough buyers at most sales to bid up the price to a good level for the seller,” says Randy Dickhut, senior vice president of real estate operations for Farmers National Company. “But in the coming months, will buyers become even more cautious while at the same time will we see more land come up for sale for various reasons?”

This tight balance leaves farmers, lenders and investors on edge—and farmland values stable. 

The pace of farmland-value drops has slowed in several areas, according to a recent report from Farm Credit Services of America. Values largely held steady through the last half 2018 for the 64 benchmark farms the lending institution monitors in Iowa, Nebraska, South Dakota and Wyoming. 

Iowa farmland values are largely unchanged from a year ago, while Nebraska and South Dakota each saw modest declines for the year. Only Wyoming experienced an uptick. Compared to the market’s peak, farmland values are down nearly 20% in Nebraska, 18% in Iowa and 12% in South Dakota, according to Farm Credit Services of America. 

Overall, land sales are expected to trend back to historically average levels, says Jim Knuth, senior vice president Farm Credit Services of America. “The market has been able to digest this move back to normalization,” he says.

Profits, revenue, margins, current results and future expectations all drive farmland values, Knuth says. For example, net farm income has fallen 40% to 50% from its peak, while land values only declined 15% to 20%.


“The market has been able to digest this move back to normalization.”


The financial health of farmers will be key moving forward. “We are starting to hear more talk about financially stressed farmers in areas who may have to sell a farm or other assets to improve their financial condition,” says Sam Kain, Farmers National Company area sales manager for Iowa and Wisconsin. “Only 3% of our sales last year were due to financial stress, but we may see an increase in these in 2019.”

While these forced sales are still rare, Dickhut says, there has been an increase of quiet sales to neighbors or investors where the land is never exposed to the open market. 

“A late harvest, uncertainties in trade policy and lateness in Market Facilitation Program payments, just delays the loan renewal season,” he says. “The ultimate question is how many more properties for sale can the market handle before the volume overwhelms the number of buyers and puts downward pressure on land prices.”

Low interest rates, a diversified land owner base and cautious buyers only add to more of the same in land values, Dickhut says. “Looking forward, I think we’ll continue to see some softening, unless grain prices really bounce and put some optimism back in the market.” 

 

Soft-to-Steady Farmland Values

The average sale prices for high-quality farmland across the country show values are steady, with regional differences showing up, says Farmers National Company’s Randy Dickhut. Those include dairy producers in Wisconsin, New York and other states experiencing continued low milk prices causing an increase in retirement sales and extremely variable crop yields in 2018, which adds to producers’ financial stress and results in more land for sale.  

High Quality Land Values by State