The farmland market continues to set new price records, even with more acres hitting the market.
“The increased sale activity in the land market we saw in 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 in a similar period in any of the previous four years, but prices all went up.”
For Farmers National Company, the number of auctions have 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.
Why have farmland prices reached this new threshold? Doug Hensley, president of real estate services for Hertz Farm Management, points to several key reasons:
- High commodity prices
- Inflation
- Still low interest rates
- Global unrest due to Russia’s invasion of Ukraine
As a result, he says, the entire U.S. farmland market is strong.
“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.”
How Can Farmers Pay for land?
Even with historically high corn and soybean prices, much of this high-priced farmland won’t necessarily cash flow. So how are farmers able to pay such huge prices?
The answer: Those farmers have what Hensley calls dry powder. They have built up equity from ground they own, and they leverage it to pull the trigger and buy additional ground.
“They’re taking profits from other land and building their business,” Hensley says. “It’s been a bit of a perfect storm the past 12 to 18 months.”
The question now is with higher interest rates coming into play, will that cool the market or accelerate farmers’ sense of urgency?
Long term, the selling and buying are likely to cool due to increasing mortgage rates, Hensley says.
“A year ago we were at 3% to 4% on some of these longer-term, fixed-rate mortgages,” he says. “Now, we’re up in that 4.5%-to-6% range. It’s hard to tell where we’ll be a year from now, but we haven’t seen any weakness in this market.”
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