Who's Really Behind All These Record Farmland Sales?
The number of record farmland sales was a major story in 2022. Just when farmers thought a $20,000 per acre farmland sale was rare, a $30,000 farmland sale happened late in 2022, further concreting the idea that 2022 would be a historic year for the land market.
Farmers National Company released its 2023 land values report this week, showing landowners selling property experienced values never-before-seen for their farmland. Land sold at auctions set records in several states with values across Corn Belt states seeing a year-to-year increase between 20% and 34%.
What’s driving the dynamic land auction market? Paul Schadegg, senior vice president of real estate operations at Farmers National Company says strong commodity prices, along with not enough supply to meet the demand, are the main drivers today.
“I've been in this business over 25 years, and I've never seen anything like it,” says Schadegg. “I've been through the ebbs and flows of some of these ag cycles and saw land markets come up in the 90s, in the early 2000s, that we thought we'd never see those values again. But we've never had everything come together with such strong commodity markets and such strong demand.”
Historic Farmland Auctions
Farmers National Company says it saw record sales volume of $766 million in 2022, which exceeds the previous record set in 2021. The majority of those sales were through auction. Farmers National Company says the auction market brought increases in both total transactions, as well as acres sold, but the hunger from buyers was still more than the land market could produce.
“Our data is showing that nearly 80% of the buyers, the final buyers of land, are still those local owner operators that have been looking to add land to their operation,” Schadegg points out. “But with that being said, the reason that there's so much competition in the market is that you have these either individual investors or investment groups who are helping to drive that those bids up there. So even though that investor may not have been the buyer, they were part of the equation and cause that operator to bid it up.”
Farmland Outlook for 2023
While not every sale is coming in above $20,000, each region is reporting a slew of record farmland sales, which is a theme that seems to be on track for 2023. Schadegg says his outlook for farmland prices in the new year is one that takes into account the amount of land available and options to reinvest that money somewhere else.
“My thought is that we're probably going to see, values stay really strong, because there's still a limited amount of, of land come into the market. We've got a lot of landowners that they look at that opportunity to sell at record prices. But then they look at what am I going to do with that money? Where am I going to reinvest that money that is anything better than what I have? And so there's some that they consider selling, and then they decide, you know, I think I'm going to hold on to this asset,” he says.
The one caveat is the outlook for commodity prices. With higher input prices, inflation, along with the possibility of pressure in the commodity price sector, Schadegg thinks those factors could impact overall farmland values in the new year.
“We're coming into 2023, similar to what we did 2021 where we're very cautious about where where's this land market is going to go,” he says. “One little glitch in commodity markets is we continue to see interest rates rise and we continue to see inflation increase and inputs costing more. We are very cautious about where this land market could go. I don't think it's going to drop out of the sky, but I really think we're going to see some kind of a settling of values just because of all those other factors that weren't quite as strong and play a year ago.”
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