Faced with a wide range of questions leaves the land market holding its breath, notes Farmers National Company (FNC), Omaha, Nebraska. Will the negative farm financial situation finally overcome other factors to drive land prices the final leg lower? Will outside influences put more stress on land values or actually support prices? Will regional pockets of stress spill over into the overall land market?
“We are seeing an uptick in our land sales as more families and inheritors want to sell now,” says 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%. These landowners are just deciding now is the time to sell and capture today’s price.”
Overall, agricultural land values have held up surprisingly well over the past few years despite lower commodity prices and much lower farm incomes compared to five years ago. There are a number of reasons for this, including the low supply of land for sale, cash rental rates remaining stronger than expected and interest rates that have been historically low, FNC notes.
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 states.
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, Dickhut notes.
“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. 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,” Dickhut concludes.
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 FNC this past year in the state,” reports Sam Kain, area sales manager. “Sale prices for good quality land were about even compared to the previous year.”
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% of our sales last year were due to financial stress, but we may see an increase in these in 2019,” he says.
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 says.
Illinois, Indiana, Ohio, Michigan, Missouri and Arkansas
Values for good quality farmland continue to hold fairly steady across the eastern Corn Belt and Delta. “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,” state 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 states.
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 says.
North Dakota, South Dakota, and Minnesota
Brian Mohr, area sales manager for Farmers National Company, said he is seeing increased land sale activity in the three states he covers. “We are getting more calls about selling land and are handling more sales. Activity has definitely picked up from a few months ago,” Mohr reports.
“FNC auction sales have increased in the region as sellers are considering the public auction method to sell their farm or ranch. We are doing auctions in areas that we have not been before,” Mohr notes.
Prices for good quality land in the region have been fairly steady in the past year as there has been good demand for the few farms that came up for sale. “Selling a ranch is a little different than selling a farm as there are fewer buyers interested in the ranch whereas there a quite a few interested buyers for each farm that comes up for sale,” he notes.
Looking ahead, Mohr sees some challenges in the land market. “I am concerned that the enthusiasm of buyers is waning somewhat, which could soften our land prices,” he says.
Nebraska, Kansas, Oklahoma and Texas
Auction activity has been typical in the region reports Paul Schadegg, area sales manager. “FNC has its normal number of auctions across the different states and has added new activity in Oklahoma. Sales prices were good, but definitely under a little more pressure this past year in some locations,” Schadegg states.
Buyers are becoming more cautious as they contemplate 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. Understanding water availability and quality for irrigation is very important in much of the Plains states.
Looking ahead, Schadegg 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,” he says.
The major issues for Northwest growers continue to be immigration and labor, trade and tariffs, and the Farm Bill. Most of 2018 was plagued by shortages of labor for the labor-intensive crops – asparagus, tree fruits, vineyards, and livestock operations.
The region is experiencing major reconfigurations of orchards in an attempt to get higher production from the same acres. Higher density planting, re-grafting, and actually total removal of some varieties is taking place, says Flo Sayer, FNC real estate broker.
Lenders are tightening financing requirements more than in the past and many growers are experiencing a drop in equity as a result. While there appears to be adequate small properties (less than 20 acres in size) to satisfy the market, larger acreages are scarce and the values to the grower are far less than the sellers and land owners would like for returns. Properties in the Basin have ranged from a high of $18,000 per acre to other areas that have seen a decline in prices to near the $10,000 per acre value. For the most part, prices are at a plateau.
“Interest rates appear to be holding for at least the next few months. This is a good sign that stability in the market is at hand. While not a lot of farmland is changing hands, there is a lot of interest in where trade issues will head in the future. The land market is leveling off and may decline a bit more over the next year or two,” Sayre states.
For the most part, land sales in Georgia for 2018 saw improvement in both volume and price over recent years. There is good demand for quality farmland and prices have edged up, reports Wayne Groover, FNC real estate broker. However, market supply of quality farmland remains relatively limited and so one would assume that any significant increase in that supply will at least temper the market if not move values downward.
Lower quality farmland and recreational land have improved in value to a degree, but with what seems to be a more than adequate market supply and, in most cases, unrealistic asking prices, sales have not happened until after some time on the market and a subsequent price adjustment.
Timberland values have improved along with the general economy. Good quality soils and good to excellent stands of desirable tree species will draw a lot of interest and if priced competitively will sell readily. However, many tracts leave a lot to be desired as far as having quality soils and/or timber stands.
“They may have suffered from poor management or even no forest management at all. These tracts are, for all intents and purposes, recreational properties by default and values will ebb and flow along with the general economy. There is not the demand for these properties as compared to pre-2008, but it is improving,” Groover says.
Transitional land values (those tracts that are located in areas seeing heavy development pressure) are on a tear. In areas with good strong economies and robust growth, these properties are fetching prices comparable to and, in some cases, exceeding pre-2008 values. These market areas are pretty much limited to suburban and urban areas, but some smaller towns are in the game as well.
Georgia as a whole has a very diverse and robust economy; however, large areas of agriculture in general are feeling some significant pressures from finances and storm damage. It remains to be seen what impact that will have on land values in the next few years.