Land values stabilized, as 2014 came to an end, from the double digit increases of the past few years, according to Farmers National Company, the nation’s leading farm and ranch real estate company. Location and quality of land continue to be main drivers of prices for a given tract of land. The lower supply of land for sale and the continued demand for agricultural land is maintaining general stability of the land market.
“While lower grade land has seen drops in value near 15 percent from recent highs, top quality crop and grazing land still bring solid prices as owner operators and investors seek to expand their operations with the most productive land,” said Randy Dickhut, AFM, Vice President of Real Estate Operations of Farmers National Company.
According to Farmers National Company, the supply of land for sale is less than in the past few years as there is no tax policy change driving sales and landowners remain tight holders of the asset. “Land is viewed as a long term asset and owners consider agricultural land a stable investment in a changing world,” said Dickhut.
Demand for cropland and grazing land from owner operators remains good, but buyers are being more realistic in what they will pay given lower grain prices. Sellers are having to be realistic in evaluating the quality of their land and the expected selling price in order to have a successful sale.
Despite leveling or moderately decreasing land values overall, strong prices paid for specific properties within the last 60 days are based on local competition and the desire for quality. According to Dickhut, farmland seldom comes up for sale in many locations, therefore local producers are willing to pay top dollar to grow their operation and asset base.
Recent value adjustments in the land market still leave land values at historically high levels in the longer term view. Price softening is happening, but at different rates depending on the region, prices for major commodities in that region, and quality of the land. Profitability from record crop incomes supported by insurance coverage, has kept farm operations in the black and producers interested in adding land.
“Buyers are being more realistic when considering land purchases which has reduced the fervor of rapidly escalating prices seen at land auctions in recent years,” said Dickhut. “Owner operators continue to be the main purchasers of agricultural land comprising nearly 90% of buyers in many areas.”
Investors are showing up in the market to purchase land, but are also being realistic in the timing of their purchases and the long term outlook for agricultural land.
Profitability in recent years has left many farm owners cash rich and opting for land purchases for personal and business investments. The tangibility of land and the ability to grow their operation makes land a preferred investment for the owner operator. Producers are being more realistic with their land purchases as they give more attention to the economics of the asset and seek increased financing.
Even with lower grain prices, record grain harvests will keep net farm income quite positive in 2015. This factor should keep the current market fairly stable for the time being.
“As we forecast further out into late 2015 and 2016, circumstances could shift,” said Dickhut. One of the factors that could impact values moving into 2015 is the potential for rising interest rates. If rates increase gradually, as predicted, market impact should be minimal in the short term.
Longer term, world demand for water, food, fuel and fiber will determine commodity prices which will affect future land values. As long as the supply of land for sale remains low and demand continues to be present, land values will be supported, according to Dickhut.
Farmland investment is still a positive long term opportunity for most producers and investors. Despite slight downward shifts, the land market remains stable and supports business expansion for farm operators looking to grow their businesses and investors wanting a long term asset.
REGIONAL LAND VALUES
Arkansas, Mississippi, Missouri and Texas
Prices for top farmland are averaging $5,000 per acre in Arkansas, $3,750 per acre in Tennessee, $3,500 per acre in Texas, $5,000 per acre in Mississippi and $7,500 per acre in the Missouri Boot Heel.
Activity in the southern region overall remains steady, but calm. Year-end values for 2014 in Texas indicate an overall slight increase above 2013 of approximately eight percent. The Texas statewide, size adjusted, average price is near $2,350 per acre, up from $2,160 per acre last year. Quality land for sale in all classes is still moving quickly, said Mike Lansford, Farmers National Company, Vice President and Area Sales Manager for the Southern Region, Fort Worth, Texas. Other states in the southern region are posting steady, but generally flat, land values.
Texas has seen an increase in land sale activity along with a slight increase in land values in the past year, said Lansford. The wide variety of geographic regions and land classes in the state has led to some variance of an overall trend. Although improved in 2014, the prolonged drought across much of Texas and the Southwest continues to be the strongest deterrent for the land market.
More recently, falling oil prices and the continued possibility of rising interest rates are contributing to projected uncertainty.
With commodity prices decreasing, there has been an increased demand for managed timber tracts in East Texas. Well managed pine plantations reflect average prices of approximately $3,500 per acre. Listing demand for timber tracts has seen a drastic increase in the past year.
“Land values should remain steady and exhibit less fluctuation as seen in recent years,” said Lansford. “Quality is still king no matter what the land classification. Top quality properties in all classes will continue to capture good prices. Buyers for top producing farms are still available.”
Illinois, Indiana, Ohio, Southern Michigan, Western Kentucky and Eastern Missouri
Top prices in the region can be seen in Illinois at $12,000 per acre on average for high quality land. These levels are followed by Indiana showing values up to $9,950 per acre and Ohio at $7,750 per acre.
Farmland values have trended higher in the past several years throughout the eastern region, and with the recent downturn in crop prices, a calming trend is evident in this area. Quality farmland values remain fairly steady with a slight decline, according to Roger Hayworth, Area Sales Manager for Farmers National Company, Lafayette, Ind.
Prices are directly tied to specific property location and characteristics, including quality and improvements. Demand remains steady, but cautious, and is tied directly to buyer motivation, such as business expansion. The number of transactions is lower than has been seen in the past two years.
“Economic factors that have led to the recent leveling include the current commodity market,” said Hayworth. “In addition, available cash from past farm profitability is allowing local land buyers to enhance their acreage control.”
Mid to lower quality farms have seen a weakening in value, which is forecast to continue. Overall, quality farmland values in the region have declined two to five percent.
“The land market is still very manageable for both buyers and sellers,” said Hayworth. “Land remains an inflationary hedge, and the demand for controlled acres remains high. The next 12 months will be very telling for values.”
Kansas and Oklahoma
Prices for irrigated high quality cropland in the area are variable, but range between $3,300 to $5,000 per acre in western Kansas and $6,000 to $12,000 in northeast Kansas, while the range for non-irrigated land is $2,500 to $4,800.
The market for high quality cropland has leveled off throughout the South Central Plains. Buyers are discriminating on marginal to lower quality land due to reduced commodity prices. This is especially true in areas that use irrigation and are experiencing a decline in water levels.
Values remain historically strong overall and high quality land is still bringing top dollar, according to Brock Thurman, AFM, Farmers National Company Vice President and Area Sales Manager, Kiowa, Kan.
“Demand from operators looking for higher quality land for expansion is still high,” said Thurman. “The market remains strong at this point.”
Sales prices for properties with mineral rights and active production remain steady. In addition, positive crop production levels or profitability boosted by crop insurance receipts are also keeping values at high levels. Values remain tied to land quality and location.
Iowa and Minnesota
In Iowa, top quality land is selling at more than $11,000 per acre, while Minnesota values are reaching $9,000 per acre.
Land values appear to be trending downward in specific areas of Iowa and Minnesota, according to Sam Kain, National Sales Manager for Farmers National Company, West Des Moines, Iowa. Most of the recent changes have occurred in the last 45 to 60 days.
“It is really hard to get a handle on the change in land values as some areas still tend to be very aggressive,” said Kain. “With the outlook for lower commodity prices in 2015, I think we may have hit the top in the land market for a while,” said Kain. “However, with fewer properties for sale it remains to be seen if a downward trend will be long-term.”
Land is a long-term investment for most buyers, farm owners who want a property that is being sold know they may not get a second chance to buy it within their lifetime. If they want that property they need to aggressively try to purchase it or they may miss the opportunity to ever own it.
Auction activity for land sales in North Dakota, eastern South Dakota and western Minnesota continue to tighten when compared to 2013, with more transactions going to private listings, according to Terry Longtin, Farmers National Company Vice President and Area Sales Manager, Grand Forks, N.D.
While there are still buyers, sales levels have weakened a bit overall, with levels coming in at 10 to15 percent below the high values of 2012 and 2013. The private listings are working much better as buyers prefer a behind the scenes purchase, versus bidding against their neighbor in a public forum.
North Dakota, Eastern South Dakota and Western Minnesota
Average to good quality land in the area is selling in the $4,000 to $6,000 per acre range, while excellent land is in the $6,000 to $8,000 per acre range. Top quality land in South Dakota is pulling up to $8,100 per acre, while North Dakota is coming in at $7,200 and Minnesota at $9,000.
“I feel we are at a stabilizing place in the market,” said Longtin. “For people wanting to sell, prices are still excellent, even if they are slightly down from a year ago. Our region’s agricultural economy may be a bit weaker than other regions due to lower commodity prices, a high basis due to railroad transportation issues and average production levels in 2014. Overall though, sellers are still seeing historically high price levels.”
Colorado, South Dakota, Nebraska and Wyoming
Prices in this wide region are ranging from $4,500 to $12,000 per acre for high quality tillable acres, with location, soils and topography dictating price.
During 2014, the wide region covering Colorado, western South Dakota, Nebraska and Wyoming saw continued land sales activity. While land values have not increased significantly, they are still at a steady high level, said JD Maxson, Area Sales Manager for Farmers National Company, North Platte, Neb.
Demand for high quality crop ground coupled with current commodity prices still remain the motivating factors driving land prices. Sellers currently are concerned about long-term commodity prices and buyers are less willing to pay top price. Although land prices have stabilized throughout 2014, most noticeably in the fourth quarter, farmers, owner/operators and investors are still focused on acquiring additional acres.
“The majority of our buyers and sellers have adjusted their expectations in light of lower commodity prices and are more realistic when looking at the bottom line,” said Maxson. “Recent sales and continued buyer demand have reinforced the strength of the land market, which should continue into 2015.”
Recent land auctions since September confirm that buyer demand remains strong for high quality cropland, as prices in this area have reached all-time highs. Auctions scheduled in 2015 will drive the land market values in this region.
“Medium to below average farms are selling at 10, 15 and 20 percent below 2013 prices in specific locations across Nebraska,” said Maxson. “Renewed confidence in the stock market and financial markets may begin to have an impact on land prices. We may see a transition of wealth away from agriculture as investors adjust to favorable increases in returns on alternative investments; however, I don’t foresee a sharp decline in ag land values.”
Irrigated farmland in the area is currently averaging $10,000 per acre. One property close to the Urban Growth Boundary recently sold for $14,000 per acre. While the irrigated land prices remain strong, prices in the area have softened with the commodity prices showing $900 per acre for 25-bushel land to $1,400 to $1,500 for 50- to 60-bushel land. Reaching into the Palouse area, prices remain stronger due to the demand for annually cropped acreage, approaching $3,000 per acre.
Activity is brisk and very competitive for high quality agricultural land in the Pacific Northwest, driven mostly by minimal supply and high demand, according to Flo Sayre, Real Estate Broker for Farmers National Company in Pasco, Wash.
Investors are clearly one of the strongest demand sources. Rents are very strong in the Columbia Basin, fueled by the number of younger farmers competing for acres. Sellers at this time seem to be asking more than the market can support. Those parcels that are priced correctly have buyers clamoring to get the bid for the property.
“The 30 to 40-year-old generation of young farmers has the skill set, the knowledge and the equipment to farm, but with land prices at the all-time high, they do not have the horsepower to purchase,” said Sayre. “Therefore, they aggressively compete for the same acres. That, in turn, keeps the rents high and gives landowners plenty of cash flow to discourage selling.”
While the prices are high, the local ag lenders are reigning in on the seasonal production loans which, in turn, prompts potential sellers to think about selling.
“We are seeing a few parcels come on the market, though these are not high-end pieces,” said Sayre. “Either they are too small for the investor-buyer or there are enough issues with the property to deter the neighbors from purchasing.”
As the year wraps up and lenders become more demanding of higher returns, expect to see a higher volume of properties turning over. Interest rates cannot remain at this level forever, Sayre said. Buying power will decline as interest rates begin to climb. Sayre expects 2015 to be a “very active year” for real estate sales in the Pacific Northwest.
“If landowners are considering selling, they need to be first in line to attract the best buyers,” Sayre said.