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The tea on hot farmland prices

Getty/ArtSvitlyna Aerial view of farm fields
What’s behind the record prices, and where is the land market headed this year?

It’s been exciting times in the agricultural land market with more farms being placed on the market and new buyers coming in.   

In the past 12 months, most areas of the Grain Belt experienced an increase in the amount of land sold, starting with an uptick in sale activity last fall. According to Farmers National Company, several states saw at least a 10% bump in the number of farmland transactions, while others had a more moderate increase in sales.     

But who is selling, and who is buying? And when will these crazy prices let up?

Why the high price tags?

Many farmers have seen strong pocketbooks throughout the past year. Higher commodity prices and better farm incomes, in part from government payments, led to more aggressive bidders in recent months. Additionally, individuals looking for an inflation-hedging investment have popped up across the country.

What started as a gradual strengthening of sales prices last fall escalated into aggressive bidding the past five months, generating record prices paid for farmland in many areas, says Randy Dickhut, senior vice president of real estate operations with Farmers National Company.   

Competitive bidding methods have also played a role in driving land prices higher. Like many other industries, land sales have seen benefits from the virtual shift during the pandemic. In addition to the traditional public auction, hot farmland sales are using various online auction tools, increasing the accessibility for even more buyers.

Recently, the demand to buy has significantly outweighed the supply of farmland for sale.

U.S. average cropland value 2007-2021 from USDA-NASS

Who is in, who is out?

Higher land prices in 2021 grabbed the attention of more non-operating landowners. The potential threat of tax law changes also nudged along the desire for some landowners to sell.

Farmers National Company alone has seen a 62% boost in acres sold by the company in the past 12 months, and a 14% increase in overall transactions.

“Sellers continue to be mostly estates, individual's trusts, recent inheritors and family ownership groups,” Dickhut says. Additionally, the generational shift sparked more land sales in recent years as the WWII and Korean War generations pass. 

Normally, retiring farms keep their land, as it has always been their prime retirement plan, Dickhut explains. Now, some smaller farmers or ranchers are more likely to sell some land at retirement. 

Existing farmers continue to be the predominant buyer of farmland, comprising upwards of 80% of buyers in many areas. Individual investors who live within the area of the farm are the next largest group of purchasers. Individual investors outside of the area and institutional investors trail behind.

Will aggressive bidding continue? 

How long prices will last is anyone's guess. If the underlying supporting factors of low interest rates, lower supply of land for sale, and good farm incomes are in place, high land prices will stick around. 

“If the fundamental factors supporting land prices continue in the current direction, the market should be firm to somewhat higher,” Dickhut says. “Commodity prices and farm incomes will need to remain above long-term averages to provide the financial ability for producers to consider buying more land."

If any of these factors change enough to cause a change in the trend, or if an unforeseen national or world event happens, then land prices could be affected, Dickhut adds.

Another topic to keep on the radar is interest rates. Economists expect the Federal Reserve to increase interest rates to fight inflation, but by how much and how soon remains unknown. Less than two weeks ago, JPMorgan CEO Jamie Dimon predicted up to seven interest rate hikes from the Federal Reserve.

“For now, the outlook for the land market is positive as farmland continues to be a safe, long-term investment,” Dickhut says.

Graph of land values by state over past three years

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