Critical Window for Farmland Values

Above-average crop yields created optimism for farmland prices last fall. That post-harvest bump combined with a short supply of land for sale and continued low interest rates have propped up values in many locations, says Randy Dickhut, senior vice president of real estate operations for Farmers National Company (FNC).

“In general, there is still enough purchasing power in the hands of farmers to compete for good land,” Dickhut says. “We are also seeing a small increase in 1031 tax deferred exchange buyers as they move to trade into different land or to diversify out of other real estate holdings and into cropland.”

But, land values face some serious headwinds. Current farm economics are not conducive to strength in the land market, as low grain prices are keeping overall farm income levels depressed, Dickhut explains. As a result, lenders are hesitant to lend money for land purchases.

“Cash flow and equity concerns of farmers could generate additional land for sale in the market as some producers liquidate either land or equipment to shore up their finances,” he says. “The magnitude of these additional land sales will probably be small and vary by region, but the potential for an increase in the supply of land on the market bears watching.”

Outside influences such as investor interest, changes in U.S. trade policy, unexpected consequences from tax laws and potential changes in the next farm bill could also send farmland values south.

“The next six months will determine the direction of land values,” Dickhut says. “Economic and financial factors will become more evident for producers and lenders. The factors and the outside influences will become better defined as we move through 2018.”

Here are state-level insights from FNC’s semiannual market update.

The Dakotas, Minnesota. Good to high-quality land in the three-state region is seeing steady to slightly higher values. “Farmers are interested in adding the right type of acres to their operations and seem willing to bid up to get the land purchased,” says Brian Mohr, area sales manager. Conversely, range land in western South Dakota has not seen the buying interest or strength in prices.

Eastern Corn Belt. Quality is king in the eastern Corn Belt. “Prices for good land are steady to slightly stronger when compared to the same time a year ago,” says Roger Hayworth, area sales manager. “The low supply of properties on the market helps support land values.” Farmers are the primary buyers of land in the region, but Hayworth notes, investor interest has increased.

Iowa. Despite reduced farm incomes, demand for high-quality cropland in Iowa remains strong. “Buyers of farmland are being more deliberate about their decisions, but farmers and investors are very interested in purchasing the right piece of ground that makes sense for them,” says Sam Kain, national sales manager. “Lenders are being more cautious in the amount of money they will lend on a land purchase, but there is still enough capital in the country to create demand for good land.”

Nebraska. Sales activity is high in Nebraska and good-quality land is selling well, but lower-quality cropland or grassland is struggling to find buyers, notes Paul Schadegg, area sales manager. “Some additional sales are expected before planting time from financially motivated sellers as the farm economy struggles with low grain prices,” he says.

Kansas, Oklahoma. The land market in Kansas and Oklahoma is slow, Schadegg reports. “There is less land for sale than normal and buyers continue to be more cautious in making purchase decisions,” he says.

Texas. The land market in Texas remains steady. “The diversity of land in Texas, the wider range of buyers and the varied uses for land all contribute to the land market being more stable here,” Schadegg says.

Washington, Oregon, Idaho. Location and quality drive values in these states, reports broker Flo Sayre. She expects to see increased interest in selling land from aging farmers and potentially financially motivated sales.