Steady land market defies trend

FF Editor
Farm Forum

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Farmers National Company

OMAHA, Neb. – As agriculture enters the projected fourth year of lower farm incomes, the question landowners, operators and lenders have is: Where are land values heading from here?

“The trend in today’s land market is hard to discern as some sales bring a better than anticipated price, while others may show a decline in value from previous sales,” said Randy Dickhut, senior vice president of real estate operations at Farmers National Company.

For sellers, buyers and lenders alike, there are important aspects of the current land market everyone should be aware of as it slowly transitions from the declines in value experienced in the past few years.

“Agricultural land values in most areas can be expected to continue to gradually decline over the next several years if commodity prices and the underlying farm incomes remain at current low levels,” Dickhut said. “Small interest rate increases, potential tax law changes and world economic uncertainties will also keep some outside pressure on land prices in the coming year.”

One unknown factor that could adversely affect land values later this year is the potential increase in the number of properties for sale caused by financial stress in the ag economy. If that occurs, knowledge and experience in the local land market becomes more important than ever as land prices seek equilibrium between sellers and buyers in a declining price environment.

“This is the No. 1 reason Farmers National Company is seeing a 21 percent increase in the volume of sales that the company is handling this year as sellers and buyers seek out our land expertise in this uncertain market so that they have the right representation to make the best decisions in buying or selling land,” Dickhut said.

Despite anticipated additional declines in land prices in most areas, there are positives on the horizon for land values.

“Those include potential improvements in farm and ranch incomes after bottoming out. If we have limited stress sales and no other shocks to the markets, land values will move to stabilize over the next several years,” Dickhut said. “Our agents are actively talking to landowners who are considering selling their farm or ranch and are seeking the marketing exposure and expertise that will get them the best price in the current market.”

Iowa

Land auctions lead the way in Iowa for Farmers National Company as it has seen a 30 percent growth in sales in the last year.

“Auction sales were 78 percent of Farmer National Company’s transactions in Iowa for the first six months of our fiscal year. Despite a more cautious land market, 97 percent of our auctions were successful and the land sold. That is a testament to the local agent who knows the buyers and sellers in their market,” said Sam Kain, ALC, GRI, ABRM, national sales manager for Farmers National Company based in West Des Moines, Iowa.

Good quality land in Iowa has been steady or experienced a slight decline in value in the past six months. Average quality land continues to see a slow decline in value while pasture land has experienced some strengthening. Estates remain the primary sellers of land as the inherited land is sold and the proceeds divided among the inheritors. Farmers continue to comprise the majority of land buyers with interest by investors coming back into play in the market.

“Overall, land values have stayed fairly stable due to the limited amount of land on the market over the past several years,” Kain said. “Recent commodity prices indicate there is still room for a downward trend in land values. If we start to see more land available on the market, we may see values decrease more rapidly.”

North Dakota, South Dakota, Minnesota

Location and quality make a difference in the land market in Farmers National Company’s northern region.

“Even though the company’s sales volume is up 20 percent in the region, sales of ranches and grazing land in the western portion of the area are slower than the cropland in the east,” according to Brian Mohr, area sales manager in Garretson, S.D.

Land values across the region continue the gradual decline seen in the past few years with good quality land barely moving lower to average or less quality land declining further. Investor interest in cropland is increasing and these buyers are competing against farmer buyers who, as a group, make most of the agricultural land purchases. Lenders are growing more cautious in working with farm and ranch borrowers as grain and livestock prices remain low.

“It is more important than ever in the current land market for sellers and buyers to work with an experienced and knowledgeable land broker. Knowing the local land market, the characteristics of the specific property and who the active buyers are is very important in getting a farm or ranch sold at the best price,” Mohr said. “We have buyers looking for distressed sales of farmland at lower prices, but we have not witnessed that in our area so far.”

Nebraska

Lower land values in Nebraska have not slowed the sales volume for Farmers National Company. Grain and livestock prices both have an impact on Nebraska land values across many regions of the state.

“Our number of sales is up 10 to 20 percent over last year and good quality land is definitely in demand,” said JD Maxson, assistant area sales manager for the company based out of Omaha. “The value of top quality land has declined a moderate amount, whereas lower quality land has taken more of a drop.”

Land auctions continue to be a primary way of selling ag land in much of the state and Farmers National Company auctions achieve a successful sale 95 percent of the time despite buyers being more cautious. Private treaty sales are being used more in the case of lower quality land and grazing acres. Local farmers and ranchers are predominate buyers as they seek to purchase land that may only come up for sale once in many generations.

“We have only seen two or three stress sales where the owner/operator needs to shore up working capital. Depending on the season and commodity prices, we could see more of these types of sales this fall if the state’s farm economy stays soft,” Maxson said. “Buyers and sellers are paying close attention to the farm and ranch economy as they consider a land transaction.”