Farmland values are largely remaining steady, according to the latest report by Farmers National Company. However, “cushion” and “emotion” have been impacted by outside forces.
“Ag Land Market Showing Signs of Settling,” headlined the land values report.
RELATED: Read the full report on recent farmland value trends from Farmers National Company. The information is broken down by geographic regions.
There are geographical differences in what is happening, according to the report.
Here are several highlights:
Illinois and Wisconsin are experiencing fewer record farm sales, and sales are down overall over the past year.
Texas, Oklahoma, and Arkansas are seeing a variety of trends, depending on specific geographic location and land purpose.
Iowa hasn’t had as much land available for sale, which has helped offset additional buyer scrutiny of land that isn’t the highest quality.
Kansas and parts of Colorado and Missouri have watched land prices drop in some areas, but improved weather and commodity prices could lead to a rebound this fall.
Paul Schadegg, Farmers National Company Senior Vice President of Real Estate Operations, said the report’s findings show that buyers have become more selective. And that has been a factor in the settling of farmland values.
“The trends we’re seeing today,” Schadegg told American Farmand Owner, “are continued pressure and the trends downward, especially on lower classes of land.”
“Buyers…kind of stepping back,” he said.
Schadegg has been with the company since 2000 and has watched farmland values escalate over his career. What is happening now is that some of the lower quality land may take a hit in value.
“A buyer can’t afford to go in there, invest some money…where maybe over the past five years, they thought, ‘You know I’ve got a little cushion there. I can step in and have it retiled, or fix some erosion issues and make it work,’” he explained.
The cushion from federal COVID-19 aid payments, previous sales, or whatever the original source has eroded for some farmland owners, Schadegg said. Blame a variety of factors, including higher input costs, increased interest rates, and lower commodity prices.
Without that cushion, some potential buyers may not feel like they can afford to purchase lower quality land that will need immediate improvements. The financial resources to do that may not be available right now.
There could be some help when it comes to costs. DTN Progressive Farmer’s research shows that the eight major fertilizers have dropped in cost over the past month and are cheaper than they were one year ago.
RELATED: Here is the report from DTN Progressive Farmer that details cheaper fertilizer costs over the past year.
Higher quality land, on the other hand, is faring better than lower quality land in the slowed industry, according to Farmers National Company’s review. That has allowed farmland values overall to remain more stable. Investors’ interest in agricultural land has added support to values.
“There’s a reason there’s a ‘floor’ in land values,” Schadegg said, “You have those non-typical landowners, investors, funds that are willing to bid up to a certain level. So, they’ve set the floor. And then any bidding above market value is going to be emotion.”
Schadegg added, “There remains a strong appetite for land as an investment from outside investors and ag producers. The investor is looking for an asset that will produce an annual return, while the ag producer may look for expansion opportunities. Emotion comes into play when the ag producer is motivated by adjoining land, operation expansion, or land that has potentially never been offered for sale in the area.”
