Land sales remain strong, lower input costs keep farms profitable

Farm Forum

OMAHA, Neb. — Land sales finished strong in 2013, spurred by good farmer demand for additional land, according to Farmers National Company, the nation’s leading farm and ranch real estate company in the country. Farmers National Company is reporting record real estate sales of $750 million for 2013, compared to $640 million in 2012.

Activity during the first half of 2013 slowed slightly because of a surge in sales at the end of 2012 prompted by tax law changes. However, sales levels turned upward to round out the year and finished strong, according to Randy Dickhut, AFM, vice president of real estate operations of Farmers National Company. He notes that trends indicate an active pace will continue through the first half of 2014 for most regions.

Within Farmers National Company’s 24-state service area, there has been continued widespread auction activity at year-end. Farmers National Company real estate agents worked 45 auctions during November alone. Out of 829 properties sold by Farmers National Company in 2013, over 40 percent sold at auction.

While land prices have stabilized compared to the double-digit price increases seen in recent years, levels are at historical highs. Prices per acre for high quality land range nationwide from $3,500 to as high as $12,000 to $13,000 per acre in areas of Indiana, Illinois, Iowa, and Nebraska. Values in the Upper Midwest are also very strong with sales reaching $10,000 per acre.

“Farms remained profitable in 2013 despite lower commodity prices, in part due to reductions in fertilizer expenses of nearly 30 percent,” said Dickhut. “This is prompting farm owners to continue buying premium land to expand their operations. Interest in average to medium quality land has waned, slowing activity for such property.”

Prices for pasture land have increased in places like Nebraska as Texas livestock producers transplanted herds due to recent drought. As regions in Texas continue to recover from the drought, land values there are forecast to rise 5 percent to 7 percent, according to Dickhut.

A price drop of 40 percent for sugar beets has impacted land values in the Northern Region (North Dakota/South Dakota/western Minnesota). Income reduction of nearly $350 per acre in some cases is taking some land buyers out of the market. Despite this pressure, values are fairly stable in this area, Dickhut said.

Farmers continue to be the primary land buyers. Dickhut reports that investor interest in land has been more guarded as many are not willing to pay high prices without a guaranteed strong return. Recent success in the stock market is generating interest in alternative investments, pushing outside investors to choices besides land.

“The market for farmland overall remains strong, particularly for quality land even though buyers are getting more cautious,” said Dickhut. “The impact of changes in commodity prices, expenses, and interest rates will all play into year-end results.”

Iowa and Minnesota

Demand for high quality farmland continues but prices have leveled somewhat in the North Central Region including Iowa, Missouri, Minnesota and South Dakota, according to Sam Kain, national sales manager for Farmers National Company, Des Moines, Iowa.

“Cautious and selective buyers are still on the lookout for quality land, and willing to pay top dollar when they find it,” said Kain.

Land prices moving into 2014 will likely be impacted by the looming ethanol mandate, which could drop values based on commodity prices and the demand for land to support livestock in this area which could boost values.

“It’s a real balancing act as we move forward,” said Kain. “Values are still relatively strong, but market factors could pull them either way.”

Auction activity in 2013 was extremely high in this region, according to Farmers National Company numbers. The company’s national auction transactions reached 337 in the 2012-2013 fiscal year, while the Iowa market alone saw 120 auctions in 2013. The majority of purchases are going to farmers, but investors seem to be stepping back into the marketplace.

In Iowa, top quality land is selling at more than $12,000 per acre, Minnesota values are reaching $10,000 per acre, and values in eastern South Dakota have reached more than $9,000 in many areas.

North Dakota, Northern South Dakota and Western Minnesota

Buyers in the area covering North Dakota, northern South Dakota and western Minnesota continue to seek out average to high quality land for purchase, according to Terry Longtin, Farmers National Company area vice president and area sales manager, Grand Forks, N.D. Sales levels remain fairly steady and have leveled slightly as compared to last year at this time.

While demand in this area remains fairly strong, there are pockets of decline close to 10 percent, according to Longtin. Overall sellers are still happy with price levels which remain historically high.

Decline in profitability for sugar beet operations is fueling some reduction in cash flow for farmers in this area. While this is taking some potential buyers out of the market, Longtin forecasts land values will hold in the region.

“Sugar beets income is down about 40 percent and growers lost quite a bit of money last year, which is putting some pressure on the market,” said Longtin.

Transaction levels should maintain near or at current levels into 2014, according to Longtin. However, the auction transaction numbers are projected to slide downward as privately negotiated sales are beginning to make a strong comeback.

Average to good quality land in the area is selling in the $4,000 to $7,000 range per acre, while excellent land is in the $8,000 to $9,000 per acre range. Top land in South Dakota is pulling up to $9,000 per acre, while North Dakota is coming in at $8,000 and Minnesota at $10,000.

Colorado, South Dakota, Nebraska and Wyoming

High quality land is still in strong demand for the wide region covering Colorado, South Dakota, Nebraska and Wyoming. While values have not increased significantly, they are still at a steady high level says JD Maxson, area sales manager for Farmers National Company, North Platte, Neb.

While demand from both investors and farmer owner/operators is high, farmers are the ones paying top prices and targeting premium pieces of land. Auction numbers in this region continue to be strong, prompting sellers to net top sales prices, according to Maxson.

“Farmers are buying land while we are seeing a trend here of investors going elsewhere,” said Maxson. “Some investors are just reluctant to pay the higher prices they had in the past. Continued lower interest rates are still helping to keep sales activity high. However, commodity prices and the stock market’s positive performance are impacting land activity.”

Maxson reports that prices overall are plateauing for high quality land, and average to medium ground is not peaking investor interest.

The recent drought in Texas has been a major factor in driving grazing land prices up in Nebraska/South Dakota, as ranchers were relocating herds to these regions. As herds are being moved back south, grassland prices will likely adjust.

Prices in these regions are ranging from $4,500 to $12,000 per acre for high quality tillable acres, with location, soils and topography dictating price. The range varies from west to east as well as by water availability and type of irrigation.

Farmland in Eastern Nebraska is quite varied ranging from top quality cropland, to mixed use properties to pasture farms. Buyers are being more cautious when purchasing farmland as they look for good quality land at a good price. Average to below type farms are not being sought out by buyers and prices have slipped off the recent highs that have been occurred in the marketplace. Good quality farms have also seen a decline from the recent strong escalation in prices that has been happening over the past seven years. Therefore, there is a wide range of land values from $4,500 per acre to $10,000 per acre depending on quality and if irrigated.