Land values have exhibited an underlying base of strength from several factors including historically low interest rates, low supply of land for sale and adequate buying capital, reports Farmers National Company. The other side of the land value equation is seeing increased uncertainties that could weigh down the land market.
“Despite the slower land market and cautious buyers, Farmers National Company is experiencing a strong 29% increase in the number of acres sold by the company compared to last year and 22% over two years ago” states Randy Dickhut, senior vice president of real estate operations.
The biggest concern at this time in the agricultural land market is the financial health of producers, notes Dickhut. U.S. agricultural is in its sixth year of a downturn with overall net farm income for 2019 projected to be down 50% from 2013. Working capital has declined almost 70% since 2012 and inflation adjusted farm debt is at the highest level since the 1980s, he says. Low commodity prices coupled with rising costs have squeezed profits and working capital causing farmer buyers of land to be more cautious, he adds.
“Farmers National is seeing an increase in the number of farmland sales by financially stressed producers due to multiple years of reduced income” Dickhut says. “Some of these sales are sold quietly and not exposed to the marketplace to get top dollar. Other sales are coming from producers who are proactively liquidating a land asset to improve their balance sheet and cash flow. Farmers National is now handling an increasing number of land sales and receiverships for lenders.”
Overall, U.S. agriculture remains in solid financial condition despite weakening on a number of fronts. Debt to asset ratios are worsening, but remain below recent higher levels. The number of farm and ranch bankruptcies is increasing, but are far below what was experienced in the 1980s. Land values that have held up better than expected have supported the growing level of financing required for some producers, Dickhut says.
With the known problems that agriculture and the land market are facing, there are also uncertainties that will have an impact on the sale and price of ag land. Immediate concerns include low grain and milk prices and growing season weather. Trade issues continue to have short-term effects on commodity prices and production costs while the potential for ongoing negative impacts becomes possible the longer trade is disrupted. Interest rates look to be stable for the foreseeable future, but world economic performance is more uncertain. Dickhut explains.
Agricultural land values have been surprisingly resilient over the past two years despite the continuation of depressed farm incomes. Supportive factors combined to hold land prices in most areas, especially for good quality farmland, he says. Concerns are building in the land market primarily surrounding the financial health of farmers and ranchers.