OMAHA, Neb. — An annual survey across the Corn Belt found agricultural land values remain steady despite lower commodity prices and lower farm income compared to five years ago.
Farmers National Company conducted the survey, noting the reasons for steady farmland values include the low supply of land for sale, cash rental rates remaining stronger than expected, and historically low interest rates.
“At Farmers National Company, we are seeing an uptick in our land sales as more families and inheritors want to sell now,” said Randy Dickhut, senior vice president of real estate operations.
“Within our 28-state service area, we are also seeing more landowners coming to us to market and sell their land as evidenced by our volume of land for sale increasing 21 percent. These landowners are just deciding now is the time to sell and capture today’s price.
But there are some important questions looming about the land market that are causing many to figuratively hold their breath in anticipation of what comes next.
“Even though the rate of bankruptcies and forced land sales is low, there is the expectation that numbers will increase somewhat in the year ahead as farmers’ cash flows are stressed. There is also an increase of quiet sales to neighbors or investors where the land is never exposed to the market to see what the true price is. The ultimate question here is how many more properties for sale can the market handle before the volume overwhelms the number of buyers and puts downward pressure on land prices,” Dickhut said.
There are regional differences showing up in today’s land market that will have a bearing on prices. Dairy producers in Wisconsin, New York and other states have been experiencing low milk prices for some time and those areas are now seeing an increase in retirement sales involving land and assets.
Other regions did not experience the record crop yields in 2018 that other areas did, which adds to producers’ financial stress and results in additional land for sale entering the market.
Factors outside agriculture are hanging over the land market and may have a further effect on values. Landowners, lenders and producers are watching interest rates and wondering how high they might go. Higher rates not only affect borrowing costs, but also influence capitalization rates for land investors.
Those in agriculture are concerned about the current trade issues and if there will be lingering effects. On the positive side, investors, both small and large, continue to be interested in owning agricultural land for the long-term.
“The overriding question in the land market is about supply and demand. At this time, there are enough buyers at most sales to bid up the price to a good level for the seller,” Dickhut said.
“But as we move ahead over the coming months, will buyers become even more cautious than they are now while at the same time will we see more land come up for sale for various reasons? All of this is why those involved in the land market, from owner to lender, are holding their breath to see what comes over the next year.”
Illinois And Indiana
Values for good quality farmland continue to hold fairly steady across Illinois, Indiana, Ohio, Missouri and Arkansas.
“At Farmers National Company auctions, we are seeing good bidding for quality land in the more competitive areas. Farmer buyers still have the financial ability to make land purchases along with continuing investor interest in this region,” said Roger Hayworth, area sales manager.
The supply of land for sale in the region has been lower for several years, helping support steady prices. There is an increase in private transactions by farmers wanting to trade into a better farm, but few are for financial reasons.
“These behind-the-scene sales tend to be a lower price than if the land was fully exposed to the open market,” Hayworth said.
Buyers are becoming more cautious when they are contemplating a land purchase. Lower quality land prices continue to see more pressure, as there is not the demand for farms that are less productive or efficient to farm.
Looking ahead, Hayworth sees the potential for pressure on land prices.
“The uncertainty of commodity markets, pending government and global issues, and the expected rise in interest rates are challenging agriculture right now. We may see stable to slightly lower land prices over the next six months depending on what happens with any or all of the factors affecting ag,” Hayworth said.
Iowa And Wisconsin
Land sales activity in Iowa held even in 2018 with fairly steady prices.
“We saw a slight increase in the number of sales at Farmers National Company this past year in the state. Sale prices for good quality land were about even compared to the previous year,” said Sam Kain, area sales manager.
Iowa experienced a variable growing season across the state in 2018, which likely impacted the land market regionally. Parts of southern Iowa endured a dry summer while areas of northern Iowa were hit with wet weather. Both of these areas saw reduced yields that impacted the income of local farmers and their ability to make capital purchases such as land.
Even though sales activity was good through the balance of last year, Kain sees some concerns lying ahead.
“We are starting to hear more talk about financially stressed farmers in areas who may have to sell a farm or other assets to improve their financial condition. Only 3 percent of our sales last year were due to financial stress, but we may see an increase in these in 2019,” he said.
Wisconsin dairy producers are facing tough financial times due to lingering low milk prices. The state is already seeing more producers retiring or selling off assets, which indicates additional land for sale on the market.
“Many of our auctions are bringing stronger than expected prices where the bidding is active. But I am concerned that the enthusiasm of buyers is waning somewhat, which could soften our land prices,” Kain said.