What's Ahead for Land Values in 2018

January 22, 2018 05:38 AM
 
Corn field

Farmland values seemed to defy logic in 2017. Numerous factors suggested prices would creep lower—yet they stabilized in many areas.

“Despite a slow ag economy and mostly stagnant grain prices, good farmland in much of the Midwest held steady to even increasing slightly as the year progressed,” says Jim Farrell, president of Farmer’s National Company in Omaha, Neb.

Demand for farmland stayed strong, partially due to the low supply of land and strong buyer interest.

“The amount of land for sale is still well matched to the number of potential buyers,” Farrell says. “While we may see fewer bidders at an auction or even for a private treaty land sale, there is still enough interest, especially at the farmer level, to keep this market firm.”

Even though 2017 was a tough year in terms of farmer profitability, many are still in the market to buy land, says RD Schrader, president of Schrader Real Estate and Auction Company in Columbia City, Ind.

“The fluidity of the market was aided by cash built up by farmers over some very profitable recent years,” he says. Additionally, the market was supported by the attraction of investors of all sorts to the farmland market and increasing spending for recreational land.

In most areas, high-quality farmland values showed strength. But lower-quality land saw more downward pressure, says Eric Wilkinson, managing broker for Hertz Farm Management, Kankakee, Ill.

As a result, Wilkinson says the best way to sum up 2017 in terms of farmland values is: variable. “There has been more variability this year, as far as where land values were strong and where they were weak,” he says. “Some locations in the Midwest are showing values higher than what we have seen in recent years, while others are lower and more in line with our expectations.”

 

2018 And Beyond. While 2017 turned out to be better-than-expected for land values, economics will likely come into play in 2018, pushing prices lower, says Steve Bruere, president of People’s Company in Clive, Iowa.

“Farmers buy 70% to 80% of all farmland,” Bruere says. “But when margins are tighter, bankers get nervous. If farmers’ margins continue to get tighter, they will be less dominant buyers. As a result, investors could play a larger role. But investors and other buyers won’t be willing to pay as high of prices as farmers.”

For the winter months, Farrell expects land values to remain stable. “But looking longer term, I feel that land values have not hit the bottom yet,” he says. 

Increasing interest rates will eventually have a negative impact on land values, Farrell says, as would an increase in farmland sales.

“The slow farm economy could push more land on the market as some farmers look to sell a parcel or two to shore up their balance sheet,” he says. “Any increase in land on the market will likely pressure values at this point. So far land value declines have been gradual and for now I don’t see that velocity changing.”

The upside to a steady farmland market is good buying opportunities, especially compared to the rapid runup land values saw a few years ago.

“There have been opportunities to buy land at a good value,” Bruere says. “You are subject to some roller coasters in prices in the short term, but it’s always a good time to buy—if you can hold it. There hasn’t been a 10-year period where land won’t be worth more at the end of it than at the beginning.” 

Key Factors Affecting Land Values (Use heading 3)

What will influence land values next year? Keep an eye on these issues, advise leaders and analysts at sales and farmland management companies.

• Available cash by farmers

• The supply of land on the market

• Commodity prices

• Global and U.S. policy changes (especially around trade, ethanol and taxes)

• Interest rates

• Optimism in rural America

• The global demand for food

• The number of interested land buyers

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Comments

 
Spell Check

C.K
bad axe, MI
1/22/2018 06:22 AM
 

  Will there going to go up buy design short term. In 1980 your credit market debt was 4.7 trillion . In 2000 your credit market debt was 28 trillion . Now in 2018 the credit market debt in the United States is 70 trillion . The government owes over 20 trillion of that you and your neighbors owe the rest . Every man , women and child share is over $200,000.00 in this country . There is also $8,000.00 of interest owed on you share every year. You would have to get $233,333.00 per acre for each and every acre of the 300 million acres of row crop ground in this country to pay of what's owed on credit in this country. Rest assured US Agriculture has little to do with farm land values any more. This hyper inflation caused by this injection of credit market debt of $42 trillion the last 18 years is dictating farmland values. With hyper inflation 4 to 5 times higher in AG assets in the US compared to our counterparts abroad were going to have a hard time exporting anything in Ag products abroad at a profit. Long term there will be a major correction in farmland values, but it will also be in all sectors of the US economy it's coming give it a few years. Just remember our credit market debt in 1929 was 240% of GDP of the USA when the last depression took place now it's 400%.

 
 
delta88
Memphis, TN
1/22/2018 08:33 AM
 

  For several years now I have been tracking the appraisal process around me. The disconnect between the comparable sales and income approach is pretty distinct. If land is only worth what it will earn then this must be true. When the t bill rate hits 4% as interest rates rise; that will be the trigger. Seeing as many "retirement equipment auctions" as ever before. Something is slowly brewing.

 
 
Ed
Lincoln, NE
1/22/2018 04:36 PM
 

  Really find the 8 factors influence and impacts on land values of interest. WHAT ECONOMIC VALUES CAN BE PLACED ON EACH FACTOR? Available cash of farmers seems to be declining. Supply of market land all of which there is only so much land. Commodity prices have come down from all-time highs yet those prices are similar to historical numbers. Global and US policies are influenced by agri-businesses, local supplies/demands, pricing opportunities and other influences. Interest rates are still relatively low. Optimism in rural America is questionable? Global food supply and demand dependent upon where population exists in numbers as cities and rural locations. Number of interested land buyers fluctuates due to numerous factors at times speculators, those wanting to diversify and those with capital funds in stocks. SO HOW DOES ONE DETERMINE OPTIMUM AVENUES. During my youth farm ground adjoining my fathers sold for approximately $100/acre and recently sold for $7400/ acre. All of the above factors were similar to today's inference topics. Now that I'm retired I sure SHOULD HAVE TAKEN MORE RISKS SPECULATING OWNING LAND MORE THAN FAMILY COULD HAVE FARMED RENTING OUT, OR LAND BANKING WITH 10 YEAR GOVERMENT PAYMENTS. AS OUR BANKER ALWAYS SAID FARM THE FARM PROGRAM?

 
 

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