A rising tide lifts all boats, and that was definitely the trend for the farmland market in 2021.
“What started as a gradual strengthening last fall escalated into aggressive bidding the past five months to generate new highs in prices paid for farmland in many areas,” says Randy Dickhut, senior vice president of real estate operations for Farmers National Company. “It has been a widespread crescendo in the agricultural land market.”
How did farmland prices reach these highs? Several factors perfectly aligned, says Doug Hensley, president of real estate services for Hertz Farm Management. They included:
- A relatively strong 2020 crop harvest in many areas.
- Rising crop prices.
- Low interest rates.
- Low inventory of farms on the market.
Once farmland prices picked up speed, sellers hit the market. In Iowa, around 123,000 acres were auctioned in 2021. That’s up from an average of around 90,000 acres in 2018 to 2020, says Jim Rothermich, farmland real estate appraiser with Iowa Appraisal.
Hensley had a client who bought a northeast Iowa farm in July 2020 for around $8,500 per acre. They sold it this past September for $13,100 per acre.
“In many ways, that sale sums up what has happened in the market this year,” he says.
The price increases caused more farmland to be sold at auction versus other methods than in years past.
“Normally over half of farms are being brokered or privately negotiated,” Hensley says. “This year, auction was the preferred method. Since we don’t know the top end for prices now, the auction method has served sellers well.”
The New Top
In 2021, R.D. Schrader, president of Schrader Real Estate and Auction Co., says his firm recorded twice as many sales above $10,000 per acre as they did in 2019 and nearly 60% more sales above $10,000 per acre than in 2020.
“Abundant cash was in the market, from both producers and investors,” he says. “Recreational land appreciated at even faster rates than farmland.”
How will values play out in 2022? “At this point, if the fundamental factors supporting land prices continue, the market should be firm to higher,” Dickhut says.
Reports from several federal reserve banks show dramatic jumps in farmland values. “It has not been uncommon to see sales prices for high-quality cropland to exceed these percentages,” Dickhut says.
