FNC: What's Ahead for Farmland Prices

Posted on 01/09/2018 9:46 AM

The market for quality land is steady to slightly stronger, reports Omaha-based Farmers National Company, while the market for lower-quality farmland remains weak. "The industry has experienced a post-harvest bump in land prices in most grain producing areas," states Randy Dickhut, senior vice president of real estate operations for Farmers National Company (FNC). "With above average crop yields in most locations, farmer optimism has increased as has the bidding for quality crop land. The supply of land on the open market remains low while the number of buyers and demand is adequate for what is on the market at this time," Dickhut says.

Other factors also are providing support for today's land prices, Dickhut notes. Continued low interest rates are helping create a demand for ag land as a long-term investment for individuals and institutional funds. "In general, there is still enough purchasing power in the hands of farmers to compete for good land or land that helps grow ones operation. We are also seeing a small increase in 1031 tax deferred exchange buyers as they move to trade into different land or to diversify out of other real estate holdings and into cropland," Dickhut says.

However, there also are factors on the horizon that could negatively affect land values, Dickhut notes. Current farm economics are not conducive to strength in the land market. Low grain prices are keeping overall farm income levels depressed. That means that lower incomes are reducing the cash flow necessary to finance crop inputs, equipment needs and land payments, leaving less cash for land purchases.

"Individual and institutional investors are well aware of the lower grain prices and incomes. The resulting reduction in the return on investment for land has kept some investors out of the land market during the past few years," he adds.

Another factor that may weigh on land prices is that lenders are being more cautious in the amount of money they will lend for agricultural land purchases. This could dampen demand as farmers and ranchers are the predominant buyers of crop and grazing land, Dickhut observes.

"Cash flow and equity concerns of farmers could generate additional land for sale in the market as some producers liquidate either land or equipment to shore up their finances. The magnitude of these additional land sales will probably be small and vary by region, but the potential for an increase in the supply of land on the market bears watching," he says.

The final factor that could have a downward effect on land values are the outside influences. This could include negative outcomes for trade that U.S. agriculture depends upon, unexpected consequences from tax laws and potential changes in the next Farm Bill.

"The next six months will determine the direction of land values. Economic and financial factors will become more evident for producers and lenders. The factors and the outside influences will become better defined as we move through 2018," Dickhut says.

Statewide average value of farmland
Farmers National Company

Demand for high quality cropland in Iowa remains strong despite the reduced farm income picture. "Values for good land have been fairly steady during the past year and have even seen a slight increase since harvest," according to Sam Kain, national sales manager for FNC based in West Des Moines, Iowa.

"Buyers of farmland are being more deliberate about their decisions, but farmers and investors are very interested in purchasing the right piece of ground that makes sense for them. Lenders are being more cautious in the amount of money they will lend on a land purchase, but there is still enough capital in the country to create demand for good land," Kain says.

Auctions are still the predominate means to sell cropland in Iowa with more than 66% of FNC's sales in the state being through the bidding process. Sam Kain noted that 99% of the Farmers National Company auctions result in a final sale. "We have very good success selling land through auctions in our Iowa marketplace as there is competition from farmers and investors," Kain says.

Illinois, Indiana, Ohio, Michigan and Missouri
Quality is king throughout the eastern Corn Belt, reports agents in this region. "Good quality land is in demand in most regions. Prices for good land are steady to slightly stronger when compared to the same time a year ago," reports Roger Hayworth, area sales manager for FNC based out of West Lafayette, Indiana.

There is generally less land for sale now than a year ago, Hayworth says. "The low supply of properties on the market helps support land values in the region. Auctions remain a good way to sell farmland in my area, but we are seeing some switch to more private treaty listings as the means to sell a farm."

As in most regions, sellers of land are mainly families and trusts. "Local farmers continue to be the primary buyers of cropland. We are seeing a few investors step back into the market, especially those with 1031 exchange money to invest," Hayworth notes.

North Dakota, South Dakota and Minnesota
Areas within this three-state region have been experiencing steady to slightly increasing land values. "In eastern North Dakota and South Dakota, we are seeing for the first time in three years a slight increase in the selling price for good to high quality cropland," says Brian Mohr, area sales manager for FNC in Garretson, S.D. Minnesota land values are holding steady from year ago levels, too.

Even though farm incomes have been challenged during the past three years, farmers are competing to buy good quality cropland. "Farmers are interested in adding the right type of acres to their operations and seem willing to bid up to get the land purchased," Mohr says. Conversely, range land in western South Dakota has not seen the buying interest or any strength in prices at this time.

"We are expecting a busy spring and summer marketing and selling land, as we believe there will be additional landowners wanting to sell at this time," Mohr predicts.

Real estate sales activity in Nebraska has seen sales volume jump ahead of the previous levels in October and November. Paul Schadegg, area sales manager for the company says "good quality land sells well, whereas lower quality crop or grassland struggles to find buyers."

"FNC holds many auctions in Nebraska with most all ending with a successful sale. That is a great outcome for our clients, especially during this slower land market," Schadegg says. Demand for high quality land extends throughout the state west to east.

Schadegg reports that sellers in the market at this time are mainly families and estates. "We are experiencing a land market with less property for sale and a more cautious demand. Some additional sales are expected before planting time from financially motivated sellers as the farm economy struggles with low grain prices," he says.

Kansas and Oklahoma
The land market in Kansas and Oklahoma is slower than normal, reports Paul Schadegg. "There is less land for sale than normal and buyers continue to be more cautious in making purchase decisions," he says.

"Good quality land sells well in most areas whereas lower quality crop or grassland struggles to find buyers," Schadegg reports. Overall, prices for good quality cropland have remained fairly steady during the past year in these two states while lower quality land may have a harder time selling.

The land market in Texas remains mostly stable. "The diversity of land in Texas, the wider range of buyers and the varied uses for land in the state all help contribute to the land market being more stable the past few years here than in the major grain producing states," says Paul Schadegg.

Washington, Oregon and Idaho
Land prices have flattened out in eastern Washington reports Flo Sayre, FNC broker in Pasco, Washington. Location and quality make an important difference in land values in the region along with the wide range of crops, fruits and vegetables that can be grown, all which influence the price of a tract of land.

"Investors are still searching for prime locations and high quality for crop production," Sayre says. She expects to see increased interest in selling land from aging farmers and potentially financially motivated sales. "Selling sooner than later might be a good strategy for anyone thinking of selling their land in the near future," she notes.

Cropland in Idaho remains steady at this time. "Good quality irrigated land in central Idaho is seldom on the open market and has good demand. This helps hold the prices steady, especially during a slow land market," reports Brian Mohr, area sales manager for FNC in that area.



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