Even if you’re not planning to buy or sell, farmland values can affect the financial health of your farm. However, pinning down a value for a particular piece of ground can be difficult without an actual sale. The best alternative is to study value estimates and trends based on survey data or sales of other properties. While different methods of estimating value offer somewhat different results, it seems clear that growth has tapered off for Ohio land values.

Today’s lower commodity prices are one of the factors that have put the brakes on land value growth. However, even though grain prices have fallen in recent years, land value trends aren’t pointing toward extreme changes in land values in Ohio. At this point, estimates show land values have either leveled off or dropped only slightly. Looking forward, Dennis Badger, vice president, Collateral Risk Management for Farm Credit Mid-America, says for the coming year he expects to see stable to moderately declining land values in Ohio.

Farm Credit Mid-America monitors farmland prices based on sales figures compiled by a staff of appraisers, Badger explains. They focus on sales of parcels of 20 acres or more that are being used for agricultural purposes and will continue to be used for agriculture. That eliminates sales of farmland for nonfarm development, which might skew price averages. The aim is to measure land value changes related to the ag economy or general economy, rather than the impact of other factors such as nonfarm development.

Based on 2016 Farm Credit Mid-America data, farmland in Ohio averaged a 0.35% increase in value compared to 2015. However, not all areas of the state showed the same change. Southeast Ohio values grew by an average of 0.70%; northeast Ohio values were up 0.20%; and northwest Ohio values led in growth with an increase of 2.16%. However, southwest Ohio’s average values dropped by 1.66%. One explanation for the regional differences in Ohio land prices is the continuing demand for higher-value land that has the soil types, topography, drainage improvements and other features that improve productivity. As landowners consider sales of land, they typically choose to sell lower-value parcels first, Badger notes. Buyers, on the other hand, are more interested in adding higher-value parcels.

Overall, compared to other parts of the Midwest, Ohio’s land values have remained steadier, Badger adds. According to the 2016 USDA farm real estate report, many Corn Belt states continue to see significant decreases in property values. The greater diversity of operations in Ohio is likely helping support land values.

Lower commodity prices may be causing Ohio farmers to re-evaluate the land they own, but Badger has not seen a jump in land hitting the market, which would likely push prices lower. “Supply and demand right now seem to be in balance,” he says.

Farm operator estimates
Rather than reviewing sales data, the USDA’s National Agricultural Statistics Service compiles annual reports on land values based on survey data gathered every year during the first two weeks of June. The information comes from farm operators who are asked the value of the land they operate, explains Cheryl Turner, state statistician for the NASS Ohio Field Office. Based on the 2016 survey data, Ohio farm real estate, including land and buildings, averaged $5,700 per acre. That value is down 0.9% from 2015. Previously, average values had increased from $5,100 in 2013 to $5,500 in 2014, and $5,750 in 2015. In comparison, the average land value for the entire Corn Belt region, which includes Ohio, Indiana, Illinois, Iowa and Missouri, was $6,290 for 2016. That average is down 0.9% from 2015 as well. Average Corn Belt values had also moved downward from 2014 to 2015, while Ohio values continued to increase from 2014 to 2015.

Mike Weasel, director of development for Wilson National Real Estate and Auction Group, points out that land prices tend to remain higher when less land is available for sale. Greater availability of land for sale may be influencing price movement in other states. “I don’t know that Ohio has had as much land change hands,” he says.

The method of sale may also affect the price of land, he adds. That’s not to imply that one method is preferable to another, because there are other considerations involved. However, public auctions, particularly in some communities where land is in high demand, can become very competitive, he explains. On the other hand, the price might not be as high if the landowner calls a long-term tenant and asks what the tenant will offer. “There are fewer bidding participants,” Weasel explains. “There’s not the burning desire from the entire crowd to buy.”

Weasel, who works with both buyers and sellers, adds that he’s noticed interest lately in 1031 property exchanges. (Based on IRS code section 1031, landowners can defer capital gains taxes on a land sale by reinvesting the proceeds in other land.) Of the last five land sales he has been involved with, three have used 1031 exchanges, selling land along urban fringes and then buying land in more rural areas. An increase in 1031 exchanges could have an impact on land values, but it’s unclear at this point whether the cluster of cases Weasel has seen show a trend or just an aberration.

As farmers consider land purchases and sales, they typically look at long-term factors including how the land fits an existing operation and the potential for capital appreciation over time, Weasel says. The percent return on investment is not as important to farmers as it is to nonfarm investors who need a certain return on their investment to make it competitive with other investment opportunities.