OMAHA, Neb. — Farm and ranch land is the financial bedrock for American agriculture, as land makes up 82 percent of total assets for the industry.
With today’s uncertainties in agriculture, everyone involved with owning, buying or selling ag land is holding their breath to see what will happen next with the market and prices, said Randy Dickhut, senior vice president of real estate operations for Farmers National Company.
“At Farmers National Company, we are seeing an uptick in our land sales as more families and inheritors want to sell now,” Dickhut said in a company news release. “… These landowners are just deciding now is the time to sell and capture today’s price.”
Questions abound in the current land market. 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?
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, Dickhut said. 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.
But there are some important questions looming about the land market.
“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,” Dickhut said.
“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.”
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.
In regions that did not experience the record crop yields in 2018, additional land for sale is 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. Higher rates not only affect borrowing costs, but also influence capitalization rates for land investors, Dickhut said.
Those in agriculture are concerned about the current trade issues and whether 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 noted.
“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?” Dickhut said.
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,” said 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 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.
Eastern Corn Belt and Delta
Values for good quality farmland continue to hold fairly steady across Illinois, Indiana, Ohio, Michigan, Missouri and Arkansas.
“We are seeing good bidding for quality land in the more competitive areas,” 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.
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.