Strong commodity prices and unique market forces have resulted in record demand and sales activity for farmland, says Farmers National Company, the nation's largest age real estate and farm and ranch management company. But several unknowns exist that could impact the coming year, the firm notes. This uncertainty is creating strong sell-side interest and buy-side activity, leading to record levels of land changing hands for Farmers National Company.
"Although across the Midwest the inventory of land for sale is still really tight, Farmers National Company is experiencing increased sales activity. The demand continues to be very strong with increasing prices even at current levels," says Lee Vermeer, AFM, ALC, vice president of real estate operations at Farmers National Company. "Sales volume at Farmers National Company is up 40% compared to 2011, setting a record pace. We are projecting that the remainder of 2012 will see continued interest from landowners regarding potential land sales."
Farmers National Company sold $600 million of farmland in the past 12 months, with $350 million in the past 6 months. This equates to 800+ farm sales during that time period, Vermeer says.
A balance of positive and negative market pressures, along with many uncertainties, is driving current market activity. The positive news for land owners is that demand for grain from world markets remains strong and there is still a limited supply of land, boosting land prices. In addition to that for landowners, returns have been strong over the last year even though input costs have increased.
The uncertainty comes from unpredictability in Europe, potential for inflation and the looming possibility of tax law changes that would increase capital gains taxes. Also, a good growing season could lead to record production levels and lower commodity prices, reducing land profitability. These and other potential changes could slow the land market slightly, according to Vermeer.
"I believe that sales activity will remain strong until some of the market uncertainties become known," states Vermeer. "People still see land as a safe, tangible investment and are willing to keep their money there over the long run."
High auction activity continues to help boost land prices with Farmers National Company conducting nearly 160 in the past six months alone. However, according to Vermeer, he is still seeing some landowners selling well below the market, leaving thousands of dollars on the table because they are not adequately exposing their property to the market.
"In a competitive real estate market like we are in, the only way to take full advantage of it is to allow the market to work for you," says Vermeer. "Full exposure to the market is the only way to know you received the full value available."
Regional Land Reports
Kansas, Oklahoma and Texas Panhandle: "The marketplace is showing spirited bidding for most properties, says Monty Meusch, area sales manager. "We're seeing the most demand for income-producing farms and ranches. Fewer new listing are coming on the market in most areas at this time. Demand is still robust for quality land."
More than 80% of purchases are going to active farmers and ranchers, with the balance to investors.
Sales prices in Kansas of top-quality land are selling for up to $5,000 per acre depending on location. Prices for irrigated cropland in the Texas Panhandle have reached #3,500 per acre, with similar property in Oklahoma going for $3,000 an acre.
Iowa, Minnesota and South Dakota: "Farmers National Company has completed 49 auctions in this area during the first four months of 2012, compared to 20 auctions during the same period last year," says Sam Kain, area sales manager. "demand is still outpacing the number of properties available and quality is definitely king."
"The bulk of the buyers are still farmers," he says. "However, despite continued strong land activity, higher cash rents and inputs costs are narrowing farmer profits. Only a quarter of purchases in the beginning of the year have gone to investors."
In Iowa, top-quality land is selling at more than $10,500 per acre. Minnesota values are reaching $8,000 an acre and values in eastern South Dakota have reached $7,000 per acre.
North Dakota and Northwest Minnesota: "Buyers are looking for quality land or less productive land that can be improved," says Terry Longin, area sales manager. There are fewer properties for sale, as absentee owners and investors are holding onto their land. Increasing net rents and land appreciation is fueling continued ownership, Longin says.
In North Dakota, and northwest Minnesota. land values are up more than 15% in the last six months and up nearly 30% over the last year. Top-quality land is in the $5,000 to $7,000 per acre range, he says. Average land value are hitting the $3,000 to $4,000 range, with marginal land values in the $1,500 to $3,000 range, he notes. "Many farmers are purchasing land out of the Conservation Reserve Program and then making land improvements which are bringing them immediate returns," Longtin states.
Colorado, Kansas, South Dakota, Central/Western Nebraska and Wyoming: The western region of the farm belt has seen record volume land sales in the past years, says area manager JD Maxson. "Demand continues to outpace farmland coming on the market as sellers are reluctant to sell," he says. "On the flip side, some sellers are capitalizing on hot market demand to get top dollar."
Prices in the region range from $5,000 to $10,000 per acre for high-quality tillable acres, with location, soils and topography dictating price.
Illinois, Indiana and Ohio: The region has had bursts of farmland supply, but overall has seen a tight market, says area manager Roger Haworth. Large farm owners continue to aggressively add acres, increasing their operations. Top prices in the region can be seen in Illinois at $10,500 per acre on average for high-quality land. These levels are followed by Indiana showing values up to $9,000 per acre and Ohio which has reached $7,500 an acre.
Arkansas, Mississippi and Tennessee: Activity in the mid-South remains brisk, fueled by low supply and high demand, says Keith Morris, area sales manager. "Prices are still trying to move up, but cash rents are nearly topped out in the this area minimizing returns."
Investor purchases are dominating this market, followed by farmer sales. Prices for top farmland average $3,800 an acre in Arkansas, $3,500 per acre in Tennessee and $3,000 in Mississippi.
Washington: Land values in the Columbia Basin and Eastern Washington have escalated to the highest on record, says Flo Sayre, real estate broker in Pasco, Washington. "Irrigated land has increased approximately 10% to 12% in the past year to eighteen months. Sellers are still holding tightly to the land as an income stream, while buyers are clamoring for more land. This is leading to bidding wars between buyers."
The bulk of the sales have gone to neighboring farmers. Cash rents have increased 10% to 20%. Prices for farmland are reaching $8,500 per acre with isolated sales nearing $10,000 per acre.
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