As lower commodities prices continue to put downward pressure on land prices, Randy Dickhut, vice president of real estate operations for Farmers National Company, says the 2015 harvest will make this year a pivotal one that could have multi-year implications. Talk of a so-called “land bubble” has eased, although land prices have softened by about 10% in many areas, he says.
“It’s gradual,” Dickhut says. “We still have strong fundamentals that support the continued supply and demand for land. The stability of the market is maintained by a lower supply of land for sale, contrasted with a continued demand for quality properties.”
Taking a much more dramatic cut is the decrease in sales volume, down about 40% compared with two years ago.
“The current level of available land is having a real impact on farm and ranch operations looking to expand,” he says. “Demand is still good for quality land. The market just isn’t as aggressive as in the past few years, so values are drifting sideways to lower.”
Lower grain prices create a ripple effect in other areas of farm production, Dickhut says. To-date, many crop input prices remain steady, but if cash rents and land values continue to diminish, input costs will adjust some as well, he says.
Of course, Dickhut notes for any given farmland sale, all it takes is two motivated bidders to drive up prices, but increasingly those stories are the exception, not the rule. Buyers are being more realistic, he says.
“Those instances don’t affect the overall statistics too much,” he says. “We can still spot trends in the averages.”
Regional highlights from the latest Farmers National Company report include:
Kansas and Oklahoma – Quality land is still in high demand but 10% to 15% below its peak. Irrigated, high-quality ground ranges between $3,300 and $5,000 per acre in western Kansas, $5,000 to $10,000 in northeast Kansas, and $1,200 to $4,000 for non-irrigated ground across the rest of Kansas and Oklahoma.
Iowa and Minnesota – Top-quality land in Iowa is going for more than $11,000 an acre. Minnesota clocks in a little lower, with land for as much as $8,100 an acre.
North Dakota, eastern South Dakota and western Minnesota – prices are down 10% to 20% from two years ago but still quite favorable when compared to a decade ago. Average and good quality land sells for $3,500 to $6,000 per acre. Higher end prices top out around $8,000 in South Dakota, $6,800 in North Dakota and $9,000 in western Minnesota.
Colorado, South Dakota, Nebraska and Wyoming – Average to medium quality cropland had declined between 10% and 20% in many cases. Individual areas in south-central and southwest Nebraska have seen farmland value drop by as much as 25%. High-quality tillable acres can receive between $4,000 and $10,500 per acre.
Illinois, Indiana, Ohio, southern Michigan, western Kentucky and eastern Missouri – Values are trending slightly downward, although a relatively tight supply of farmland has kept the negative shift at bay. Top prices in this region include $11,600 in Illinois, $9,200 in Indiana and $7,500 in Ohio.
Arkansas, Mississippi, Missouri and Texas – Activity has been described as “steady but calm.” Top prices seen in this region include $5,000 per acre in Arkansas, $3,750 per acre in Tennessee, $3,500 per acre in Texas, $5,000 per acre in Mississippi and $6,700 per acre in the Missouri Bootheel.
Pacific Northwest – Prices remains strong, with encroaching drought continuing to be a major concern. The California drought has pushed additional interest toward PNW land. Irrigated farmland averages $10,000 to $12,000 per acre.
Ultimately, location and quality of land are the biggest two drivers of pricing for individual tracts of farmland, Dickhut says.