Though the ag economy is facing headwinds in interest rates, inflation and commodity prices, all classes of land across the country have gained in value, according to Farmers National Company’s July report.
“Despite these negative pressures, the land market has remained relatively resilient but is showing signs of settling in general, including single-digit decreases in specific areas,” says Paul Schadegg, senior vice president of real estate operations at Farmers National Company.
The decreases Schadegg references can be found in the eastern part of the country - in states such as Indiana, Kentucky, Ohio and Michigan. The overall stability of the market, however, is something Steve Bruere, president of Peoples Company, chalks up to simple supply and demand.
“Commodity prices are softer and interest rates are higher, yet the farmland markets have been incredibly resilient. That’s because there’s still more capital out there that wants to own farmland than there is supply available,” Bruere says. “I talk to folks who say they want to buy farmland, but they want the market to cool off a little bit. I don’t know if the market will cool off to the degree they think that it should because there’s just not going to be supply.”
Correlation Between Farmland and Inflation
Another factor that might keep the land market from significantly settling is inflation, which, based on data from Peoples Company, is shown to be very strongly correlated with farmland values.
“There’s a strong belief that we’re at the beginning stage, because of the fiscal policy in this country, where inflation is going to last quite a while and is going to get much more severe,” Bruere says. “If you believe that and that’s the camp you’re in, then you probably want to own farmland versus being in a fixed income like a T-bill.”
But this doesn’t necessarily mean owners who are considering selling should wait for this environment to occur to get a higher price at auction.
“If you’re considering selling, and you’re saying ‘OK, next year, the farmland market is going to be more vibrant than it is today, so I’m going to wait two or three years’, I think it’s going to take a little while for this interest rate and inflation environment to sort itself out,” Bruere says.
What To Watch
The timelines for inflation, interest rates and global conflict create a lot of unknowns in the market. As always, location and type of land plays an important role in overall land values.
“We anticipate variations in land value changes across our regions in the U.S.,” Schadegg says. “Areas with strong supply/demand scenarios, an expansion of alternative land use projects and irrigation water concerns might experience more dramatic increases or decreases in values.”
This sentiment is echoed by Bruere, who says he’s never been more bullish about land.
“There’s some uncertainty around where farmland is going. But if you have a long-term timeline, there’s just never been a period where you buy a piece of farmland that it’s not going to be worth more at 10 years than the day you bought it.”
