Is $20,000 the New $10,000 in Farmland Values?
High prices cure high prices, but will that be the case with the record-breaking farmland prices seen in 2021 and early 2022?
The farmland market continues to be dynamic, with more acres hitting the market.
“The increased sale and auction activity in the land market that we saw during the last quarter of 2021 continued throughout the first quarter of 2022,” says Randy Dickhut, senior vice president of real estate operations for Farmers National Company. “Not only was there more land sold in the past six months than the previous four years, prices also continued on the strong upward trend the whole time.”
For Farmers National Company, the number of auctions held increased 65% over last year. The number of acres sold via auctions was up 106% and the dollar value of auction sales was up 130% during the same time, Dickhut says.
“Not only were the number of land auctions up the past six months, but sales prices increased dramatically into spring planting time,” he says. “A recent auction held by Farmers National Company of prime farmland in central Illinois brought $21,500 per acre for 80 acres. Other states and regions also experienced much stronger prices even from just the first of the year.”
Doug Hensley, president of real estate services for Hertz Farm Management, says the Midwestern farmland market continues to produce incredible sale results this spring.
“Several sales have approached and actually surpassed $20,000 per acre,” he says. “The $20,000 figure doesn't define the current market everywhere, but similar to when we first saw $10,000 an acre land a decade ago, it's definitely a noteworthy level.”
Why have farmland prices reached this new threshold? Hensley points to several key reasons:
- High commodity prices.
- Inflation.
- Increasing interest rates.
- Global unrest due to Russia’s invasion of Ukraine.
“Part of the gathering stream is related to timing in that most of the sales that have occurred in the past month have involved farms and can be purchased and farmed somewhat immediately for the 2022 crop year,” Hensley says. “So, there has been an enhanced sense of urgency for many of these early spring sales from a buyer's perspective.”
In terms of interest rates and inflation, Hensley says he is seeing borrowing money as a now-versus-later situation.
“Interest rates may be as much as 1.5% or 2% higher a year from now than what they are today,” he says. “I think that's influencing people to lock in long-term rates as they are today versus waiting, since land is a really long-term investment. A 2% difference in interest rates can have huge implications on the total amount of interest that may be paid over the life of the loan.”
Because of the inflationary environment, Hensley says he continues to hear farmers and investors recognize farmland’s performance as an asset class — it is stable and tangible.
At some point, no doubt, higher interest rates and higher rate environment is expected to pressure land values, but it's likely to be many months before we see that play out in any real or meaningful way.
What will the future hold?
“Time will tell if the higher prices prompt more landowners, mainly estates, trusts, recent inheritors and some family groups, to sell in the coming months,” Dickhut says. “Time will also determine if the factors supporting land prices will continue for the foreseeable future.”
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