Farmland auctions during March-April saw cautious demand in dairy, livestock and ethanol areas and steady for good quality farmland in other areas, states Farmers National Company (FNC) in its semi-annual update. The firm reports the agricultural land market came into 2020 with a glimmer of optimism until COVID-19 slammed into people’s lives.
Before COVID-19, U.S. agriculture was gaining some momentum coming off a difficult year in many sectors. Trade deals were coming into place and commodity prices had a hint of getting better.
“The market for good cropland was stable to slightly stronger in many areas as interest rates remained low and demand was fairly strong for the low supply of land for sale. Recreational land had good demand as the general economy and the overall wealth of individuals was strong,” says Randy Dickhut, senior vice president of real estate operations for FNC.
FNC land auctions continued during March and April albeit with social distancing procedures in place. What were to be public auctions became stay-in-your-pickup in the parking lot live auctions, bid sales or online auctions. Sale outcomes varied by region and property. The land market became more cautious in the areas with dairy, livestock and ethanol as these industries endured mounting bad news. In other areas, land sale prices were stable as demand for good quality land was more than adequate for the amount that did come up for sale.
“Real estate sales activity at FNC was strong during the first seven months of its fiscal year despite an industry wide slowdown. Sales volume was up 6% to 8% compared to each of the past three years.,” states Dickhut.
What is coming next for the land market?
Various factors that can impact land values are pulling in opposite directions. Positive influences include the continued low supply of good land for sale and historically low interest rates. For many, investing in ag land will be a safe haven for the current times, a long-term hedge or the means to invest in the sustainability of the food supply. The average land buyer who has resources may invest in recreational land for a place in the country. Farmers will remain buyers of land if they have the financial standing to do so.
Challenges that could put pressure on land values include the overriding potential for depressed farm incomes and the further decline of working capital for producers. Will lower farm incomes overcome the low interest environment to put pressure on farmland values? Will farm finances be helped enough by the additional infusion of federal cash payments to producers to maintain financial stability? Will there be more land come onto the market due to financial pressures that could tip the supply and demand equation?
“It is too soon to accurately answer what’s next for the land market except that agricultural land will continue to be bought and sold. Land passing to the next generation is a constant that remains in play no matter what. Decisions made by inheritors of land, producers, lenders, legislators and investors will come together over the coming months to provide the answer to what’s next for land values,” concludes Dickhut.
Iowa and Wisconsin
“Despite a slower land market in general, sales activity for FNC in Iowa increased 7% over last year for the first four months of the year, while acres sold were up 4%,” reports Sam Kain, area sales manager for the company. “There definitely has been a slowdown as we moved through spring as buyers and sellers became more cautious waiting out the uncertain economic times.”
With less high-quality land selling in the market, it is more difficult to gauge value trends. Ever since COVID-19 responses have been in place, land values in Iowa and Wisconsin have softened, Kain states. In Wisconsin, where dairy producers are once again struggling with low prices and decreased markets, land values overall may be down 10%. Iowa producers have seen lost demand for ethanol hurting grain prices while livestock prices plummeted from processing plant shutdowns.
“Buyer interest in farmland has slowed even though interest rates are extremely low. The market is generally slow this time of year, and I look for activity to pick up come late summer as more information is available, crops are nearing harvest and hopefully there are no more interruptions in meat and food supplies,” Kain says.
Nebraska, Kansas, Oklahoma and Texas
Land sales have slowed as is typical in the Plains States now as farmers and ranchers turn their full attention to springtime activities, says Paul Schadegg, area sales manager. “Our late spring land auctions were successful at or slightly above market values as there was good competitive bidding. Grazing land sales are softer due to the drop in cattle markets,” he adds.
Schadegg is optimistic for future land sale activity, however. “I am pleased with the continued interest from both sellers wanting to market their land in the next six months along with buyers inquiring about what is currently for sale and what is expected to come on the market in the near future,” he states. For the time being, private treaty listings may become the preferred sale method for land while the uncertainties continue in the economy and in agriculture.
The Dakotas, Minnesota, Eastern Corn Belt and Delta
FNC sales manages report land sales have slowed as expected in the Northern Plains as farmers focus on planting.
“Sales activity this time of year is always slow, but it is slower than normal, which is understandable with all that is happening in the world and in agriculture. Good tillable land continues to sell well at a price comparable to or slightly below last year. Lower-quality cropland prices are softer as people are not willing to bid aggressively for it. Grass and pastureland are softer than cropland due to the stress in cattle markets,” they report.
“The real estate market in eastern Washington has remained active during the COVID response,” said Flo Sayre, managing broker for Farmers National Company in Pasco, Wash. “We are getting regular calls to list properties and are still actively showing properties, although most have been virtual showings.”
Tier 1 farmland with project water has remained strong at the upper price levels, especially if the use will be for higher value crops. Potato and onion producers are facing challenges with decreased demand from restaurants and institutional food services. Alfalfa demand is questionable as dairy producers experience losses and exports are variable. There are challenges for area producers as they look to better times ahead, Sayre says.