What's Ahead for Land Values

January 24, 2018 11:27 AM
 
Prices might remain stable in the short term but likely haven’t hit bottom yet

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 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 investors interested in farmland and increased 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 farmland values in 2017 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.”

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

Increasing interest rates will eventually have a negative impact on land values, Farrell adds, 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 with the rapid runup in values a few years ago.

“There have been opportunities to buy land at a good value,” Bruere says. “You are subject to 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 wasn’t worth more at the end than at the beginning.”

Key Factors Affecting Land Values

What will influence land values this 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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