One of the hottest topics circulating around the agriculture industry the past few years has been the land market. In 2019, the topic is open for more speculation than ever as land values and the market are on edge trying to decide if prices will be pressured down or if the market will establish a bottom.
Land values have exhibited an underlying base of strength from several factors including historically low interest rates, low supply of land for sale and adequate buying capital. The other side of the land value equation is seeing increased uncertainties that could weigh down the land market.
“Despite the slower land market and cautious buyers, Farmers National Co. is experiencing a strong 29% increase in the number of acres sold by the company compared to last year and 22% over two years ago,” according to Randy Dickhut, senior vice president of real estate operations. “Farmers National is drawing landowners of all sizes by its successful marketing and sale of both larger and smaller tracts of land. Land market experience provided by local Farmers National agents coupled with the nationwide marketing presence of the company is the expertise that enables us to sell any size land holding.”
The biggest concern at this time in the agricultural land market is the financial health of producers, according to Dickhut, who directs real estate brokerage for Farmers National Co. U.S. agricultural is in its sixth year of a downturn with overall net farm income for 2019 projected to be down 50% from 2013. Working capital has declined almost 70% since 2012 and inflation adjusted farm debt is at the highest level since the 1980s, he says. Low commodity prices coupled with rising costs have squeezed profits and working capital causing farmer buyers of land to be more cautious, he adds.
“Farmers National is seeing an increase in the number of farmland sales by financially stressed producers due to multiple years of reduced income,” Dickhut says. “Some of these sales are sold quietly and not exposed to the marketplace to get top dollar. Other sales are coming from producers who are proactively liquidating a land asset to improve their balance sheet and cash flow. Farmers National is now handling an increasing number of land sales and receiverships for lenders.”
Overall, U.S. agriculture remains in solid financial condition despite weakening on a number of fronts. Debt-to-asset ratios are worsening but remain below recent higher levels. The number of farm and ranch bankruptcies is increasing but are far below what was experienced in the 1980s.
Land values that have held up better than expected have supported the growing level of financing required for some producers, Dickhut says.
With the known problems that agriculture and the land market are facing, there are also uncertainties that will have an impact on the sale and price of ag land. Immediate concerns include low grain and milk prices and growing season weather. Trade issues continue to have short-term effects on commodity prices and production costs while the potential for ongoing negative impacts becomes possible the longer trade is disrupted. Interest rates look to be stable for the foreseeable future, but world economic performance is more uncertain, Dickhut says.
Agricultural land values have been surprisingly resilient over the past two years despite the continuation of depressed farm incomes. Supportive factors combined to hold land prices in most areas, especially for good quality farmland, he says. Concerns are building in the land market primarily surrounding the financial health of farmers and ranchers.
“As 2019 unfolds, the land market will remain on edge watching farm finances, weather, and trade issues,” Dickhut says. “The outcome of these and other unknowns will guide which direction land values will move over the coming months. With the land market on edge, buyers and sellers of land need the most trusted advice available to navigate the uncertainties.”
Nebraska, Kansas, Oklahoma and Texas
Land values throughout the Southern Plains states are as varied as the terrain.
“Farmers National Co. has had above average sales activity in the region compared to last year,” says Paul Schadegg, area sales manager for Farmers National Co. “High-quality land has sold well whereas lower quality land saw a decline in demand and price. With the uncertainties in agriculture right now, people are reaching out for someone they can trust to sell their land or to help them buy a property. We are fielding an above average number of calls from investors wanting to buy land. Our agents are also getting calls from people who are thinking about selling in the coming months.”
East Texas is an important timber producing region and Farmers National Co. is handling an increasing number of sales of timber land as well as buyers who want to invest in this long-term asset. Texas ranchland remains stable to stronger as the pool of buyers is large enough to absorb whatever might come up for sale.
“If someone is thinking about selling their land or buying land as an investment, they for one need to know the local land market as each area is reacting somewhat differently which could influence price expectations,” Schadegg says. “Buyers and sellers need to be knowledgeable in today’s land market or they need to seek assistance.”
Source: Farmers National Co., which is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset.