High-quality farmland prices are staying firm or trending slightly higher, according to the semiannual market update from Farmers National Company (FNC).
Comparing June 2018 to June 2017, sales prices for high-quality farmland increased in seven of the 17 states, and prices were same in four. The remaining three states—Kansas, Nebraska and Oklahoma—each showed a small year-over-year decrease. View a PDF of the report data.
Here are some regional insights for the farmland market:
Iowa saw less ag land being sold last year than normal. Prices for good-quality land are steady to trending a bit higher, while lower-quality properties are 5% lower when compared to the past six months, says Sam Kain, area sales manager for Iowa. Auctions continue to be the predominate means to sell farmland in Iowa with estates being the majority of the sellers.
Ag lenders remain cautious in their outlook as the lower farm incomes of the past few years increasingly put pressure on the financial condition of borrowers. Even though Kain says he has only seen a few forced sales of land, the expectation is that there might be additional financially encouraged sales coming.
Arkansas, Illinois, Indiana, Michigan, Missouri, Ohio
The trend of less land on the market continues in the eastern Corn Belt states.
“The market is basically stable,” says Roger Hayworth, area sales manager for the region. “Except for Michigan where Farmers National Company is in the process of selling 14,000 acres for one owner; overall, there is less land on the market than average.”
Prices for good-quality, tillable acres are steady in most areas. Lower quality land is steady to slightly lower as there is less demand for these farms. Hayworth is seeing a slight switch from public auctions as the preferred method for selling a farm to having more private treaty listings as buyers become more careful in their land purchases.
“We believe land buyers are being more cautious right now in making large purchases,” Hayworth says.
Minnesota, North Dakota, South Dakota
Land prices in the Dakotas and Minnesota are surprisingly good given the low commodity prices. Local farmers are the predominant buyers of most of the cropland that comes up for sale.
“Prices for good quality cropland are as good as a couple of years ago,” says Brian Mohr, area sales manager for the region. “The somewhat slower overall land market in our region is mainly due to fewer farms and ranches for sale, especially in western South Dakota.”
Kansas, Nebraska, Oklahoma, Texas
Land values across the southern Plains range from stable to down 10% compared to last year.
“High quality land is selling well at auction in cropland areas,” says Paul Schadegg, area sales manager for the region. “Farmers who are in good financial condition are by far the main buyers of high-quality land that comes up for sale. Investors are also in the market to buy when the right property is available.”
Currently, Schadegg says, a few investors are deciding it is a good time to sell and a small number of land sales have been due to an operator’s financial stress. He expects there will be additional stress sales later in the year.
Interest in agricultural land in eastern Washington continues to be strong. Prices for land in the area are mostly steady from a year ago and vary based on water availability and use.
“Good fruit potential land can sell for up to $16,000 per acre while dry rangeland can sell as low as $350 per acre,” says Flo Sayre, broker for FNC in Pasco, Wash.
Current sellers of land in the area are investors with small tracts, the customary estate and beneficiaries, and a few producers wanting to alleviate cash flow stress. Sayre has not seen any financially forced sales yet, but expects to see some come the end of the year.
What factors are creating this stable farmland market? A big one is a limited supply.
“Normally, about 1% of the more than 900 million acres of crop, grazing and timber land are sold in the open market in any given year,” says Randy Dickhut, senior vice president of real estate operations for FNC. “Right now, we are seeing less than 1% trading hands, therefore, keeping the supply side of the land market equation in balance with the cautious demand.”
As farmland prices declined from the historical highs seen just a few years ago, sellers became cautious about letting land go and buyers became more measured.
With commodity markets significantly lower than a few years ago, common logic would point to more land coming on the market. That hasn’t happened, Dickhut says, because ag land is in solid financial hands, overall.
“In some areas, nearly 80% of land has no debt against it because of the age of the owner and the amount of land that has been inherited,” he says. “And the whole U.S. farm sector debt to asset ratio is still historically good.”
But this national data doesn't reflect the full picture, as some farmers are facing short cash flows and worsening balance sheets. That’s what has triggered some sales.
“There are instances here and there of producers quietly trying to sell a tract of their land to an investor to generate cash,” Dickhut says. “Also, there are lenders who are currently starting to work out the financial problems of one of their borrowers or they are planning ahead for later in the year. Most of these actions are not seen in the open market until well along in the process.”
If lower farm incomes continue, operators will have less cash to make capital purchases and any slowdown of their purchasing will lessen the bidding for land that comes up for sale, according to FNC.
Looking ahead, other factors that could influence the land market include rising interest rates and rising yields on government bonds, because the two have some correlation.