Farmland Under Pressure

November 12, 2018 05:11 PM
 
Expect  softening  farmland  values  for  2019.

Another year of tight profits, increasing interest rates and trade uncertainty—these factors should have taken farmland values lower in 2018. Yet, overall, prices stayed stable and even increased in some areas. But don’t assume a repeat in 2019.

“I expect continued pressure on land values with farmers entering the fourth year of declining profits combined with the tariff situation,” says Steve Bruere, president of People’s Company in Clive, Iowa. “In my mind, there is more down- side pressure than upside opportunity at this point.”

Sure, you’ll still hear of high land sales in the months ahead. But those will likely only occur in specific corners of the market, says Doug Hensley, president of real estate services for Hertz Farm Management in Nevada, Iowa.

“In areas where little has sold, you see price strength,” he says. “But, in areas where several farms have been offered and sold, and local capital has been drawn out, weakness is going to show up more easily.”

Yet, Hensley says, nothing points to a dramatic tumble for the land market. “Structurally, the land market is controlled by people who have learned to play the long game pretty well. So, I believe we are in an overall stable market, with a slight short-term bias lower.”

For 2019, the biggest factor affecting values will be operators’ attitudes and outlooks relating to incomes, says RD Schrader, president of Schrader Real Estate and Auction Company in Columbia City, Ind.

“Also, if financially induced land sales increase the volume of land on the market significantly, farmland prices may feel the impact,” he says.

Farmer profitability will weigh on cash rental rates in 2019, which is an indica- tor to watch, according to Jim Farrell, president of Farmer’s National Company in Omaha, Neb. “If we see rents decline due to falling income and banker pressure on borrowers, it will lower cap rates even further and again pressure land values.”

 

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