As agriculture enters the projected fourth year of lower farm incomes, the question landowners, operators and lenders have is this: Where are land values heading from here?

“The trend in today’s land market is hard to discern as some sales bring a better-than-anticipated price, while others may show a decline in value from previous sales,” says Randy Dickhut, senior vice president of real estate operations at Farmers National Co.

For sellers, buyers and lenders alike, there are important aspects of the current land market everyone should be aware of as it slowly transitions from the declines in value experienced in the past few years.

“Agricultural land values in most areas can be expected to continue to gradually decline over the next several years, if commodity prices and the underlying farm incomes remain at current low levels,” Dickhut says. “Small interest rate increases, potential tax law changes and world economic uncertainties will also keep some outside pressure on land prices in the coming year.”

One unknown factor that could adversely affect land values later this year is the potential increase in the number of properties for sale caused by financial stress in the ag economy. If that occurs, knowledge and experience in the local land market become more important than ever, as land prices seek equilibrium between sellers and buyers in a declining price environment.

Some positive signs
Despite anticipated additional declines in land prices in most areas, there are positives on the horizon for land values.

“Those include potential improvements in farm and ranch incomes after bottoming out. If we have limited stress sales and no other shocks to the markets, land values will move to stabilize over the next several years,” Dickhut says. “Our agents are actively talking to landowners who are considering selling their farm or ranch, and are seeking the marketing exposure and expertise that will get them the best price in the current market.”

In its northern regional market, Farmers National reports that location and quality make a difference in the land sales prices.

“Even though the company’s sales volume is up 20% in [Minnesota, North Dakota and South Dakota], sales of ranches and grazing land in the western portion of the area are slower than the cropland in the east,” says Brian Mohr, area sales manager in Garretson, S.D.

Investors' cropland interest increasing
Land values across the region continue the gradual decline seen in the past few years, with good-quality land barely moving, and lower- to average-or-less-quality land declining further. Investor interest in cropland is increasing and these buyers are competing against farmer buyers who, as a group, make most of the agricultural land purchases. Lenders are growing more cautious in working with farm and ranch borrowers as grain and livestock prices remain low.

In Iowa, land auctions have seen a 30% growth in sales in the last year.

Good-quality land in Iowa has been steady or experienced a slight decline in value in the past six months. Average-quality land continues to see a slow decline in value, while pastureland has experienced some strengthening. Estates remain the primary sellers of land, as the inherited land is sold and the proceeds divided among the inheritors. Farmers continue to comprise the majority of land buyers, with interest by investors coming back into play in the market.

Lands sales in Minnesota
Wingert Realty and Land Services, Inc., Mankato, reports the following sales for the month of April:

• Watonwan County, south of St James: 76.1 tillable acres, CPI 94.2, $8,578 per tillable acre

• Brown County, southeast of Springfield: 153.73 tillable acres, CPI 92.3, $8,791 per tillable acre

Sources: Farmers National Co., Wingert Realty and Land Services Inc.