Despite another year of low profit margins for farmers, rising interest rates and global economic uncertainty, the farmland market was flat to even slightly higher in 2018.
“Farmland values remain relatively resilient given the downward pressure from farm incomes,” says R.D. Schrader, president of Schrader Real Estate and Auction Company in Columbia City, Ind.
The first half of 2018 showcased strength for values as limited land was sold. This brought support to the broad Midwestern market, says Doug Hensley, president of real estate services, Hertz Farm Management in Nevada, Iowa.
But the growing season brought too much rain in some places and too little in others. Then the Chinese trade and tariff issues hit, which sank grain prices and optimism. “This shift lower has impacted the psyche of the market and the overall confidence of the 2018 land market,” Hensley says.
Those factors reduced the number of buyers who were chasing properties, says Steve Bruere, president, Peoples Company in Clive, Iowa. For 2019, he’ll watch farmer versus investor buying.
“Farmers buy 80% of Midwest row-crop farmland, and they have lower return expectations than investors who are buying for purely economic reasons,” he says.
“If you see that drop significantly and investor return expectations drive the market, you could see a significant change in land values due to the type of buyer,” he adds.
Hensley predicts that even farmers will be more selective of where, and how far, they are willing to go to compete for and/or buy a farm.
These factors will continue to pressure farmland values, explains Jim Farrell, president, Farmer’s National Company in Omaha, Neb.
“I think we will see a gradual decrease in values in the next 12 months as interest rates continue to increase and cash flow needs at the farm level continue to become more of an issue for refinance,” he says.
The big question, he says, is will it continue to be a gradual correction, or will it accelerate?
Have land values bottomed or plateaued? Hear what analysts have to say at bit.ly/KCFed-report