While much of 2020 has felt like shaky ground, good-quality farmland remains a rock-solid investment. The global pandemic as reflected in the land market reveals more impact on process than prices, according to farmland managers and appraisers in several Midwest states.
In Iowa, Dennis Reyman says although sales of farmland “paused” for a couple months when news of COVID-19 broke, values overall have remained steady. The global pandemic brought farmland sales in Iowa to a near standstill for about 60 days, but farmland values have stayed stable throughout the year and the auction pace is picking up for fall, says Reyman, a partner at Stalcup Ag Service at Storm Lake in northwest Iowa. Listings increased versus auctions during the second quarter, particularly on land lower than Grade A.
“Steady is the story on good land,” adds Reyman, an accredited farm manager, accredited rural appraiser and president-elect of the American Society of Farm Managers and Rural Appraisers. ASFMRA, the nation’s largest professional association for rural property land experts, sponsored the national land price webinar Aug. 25 to discuss price trends on rural property, the impacts of COVID-19 on the market, and who is buying and selling land.
“We had a very strong run in land values in the Midwest starting in 2003-04 and continuing through 2013-14. During 2015-16, it settled back and has maintained about steady ever since,” Reyman says. “If land is off-quality or irregular, there is less enthusiasm toward purchasing, and that is certainly where any softness in the market is going to show up first.”
In Iowa and throughout the Corn Belt, the big driver for land values is corn prices. “We track daily prices, and we’ve been in a similar pattern the past five or six years,” Reyman says. “We’ve been below $3 a bushel for a preharvest low in all but two of those years. The October average rises 25 cents a bushel or more above the low. Postharvest highs usually come in the spring to summer, with 10% to 30% increases from the October average.”
Reyman points out that the cash corn price in China has been over $7 per bushel, a positive indicator. “We’ve been selling them a lot of corn and beans recently. When you convert the corn price back to U.S., that’s an interesting statistic that portends better days ahead.”
Crop yields in Iowa have been strong since the 2012 drought, thanks to plentiful precipitation, but that’s all changing this year. “Ninety-six percent of Iowa was in some form of drought in early September, from abnormally dry to extreme D3 drought,” Reyman says. “Plus, the 100-mile-per-hour windstorm which blew across Iowa in August ruined crops and damaged facilities.”
Reyman was joined by Ray Brownfield, an accredited farm manager, accredited land consultant and broker in Illinois, in the recent ASFMRA-sponsored online discussion. Brownfield is a designated managing broker and owner of Land Pro, LLC, at Oswego, Ill. He served as president of ASFMRA in 2007 and won the organization’s D. Howard Doane Award in 2012. Matt Marschall, accredited rural appraiser and broker from San Diego, rounded out the forum focusing on West Coast real estate activity.
Who’s buying farmland?
In Illinois, Brownfield says the land market in rural areas is extremely stable and very selective. Blend in the land around the major population centers in the state — which is purchased for speculation, development, recreation and get-away purposes — and Brownfield notes, “We’ve got a mixed bag of real estate we deal with.”
On the ag land market, “we see quite a few lookers,” Brownfield says. “There’s not too much on the market right now, but what’s there, with Class A soils, is highly sought-after by farmers.” High-quality farmland is bringing $10,500 to $11,500 per acre in Illinois, while lower-end ground sells in a wide range, from $5,500 to $9,500, he says.
And in both Iowa and Illinois, these land experts agree, most of the buyers of farmland are farmers. “They are looking for a long-term investment, a long-term home for the money. The return on investment is important to farmers, but not as important as it is to the investment community,” Brownfield says.
The investment community is looking at farmland differently. “Investors are very discretionary on what they’re willing to do with other people’s money,” he says. “They are looking for 3% or greater return, which is hard to find here in Illinois.”
Development demand rising
The “recreational and get-away” buyer category is heating up in Illinois, Brownfield notes, making for a “very interesting market.” There is a growing community of buyers seeking smaller tracts of 5 to 20 acres for recreational and get-away use. Those are selling for $3,000 to $6,000 per acre. “It is a growing market, and I think it is going to continue to grow as more people would like to get away from the city.”
As people continue to move farther west from Chicago, demand for land will rise, and more land will come on the market for development. “We’re just starting to get some builders looking at bare farmland again. We haven’t had that in 10 years or more,” Brownfield says.
Veering off the country roads and traveling closer to the interstates and cities, Brownfield sees an uptick in the growth of online shopping-driven distribution centers. He says 504 acres located 65 miles west of Chicago, right off the interstate highway, sold for $80,275 per acre to a big-box distributor. What would it have brought as farm ground? Likely $11,000 per acre, he says. “We saw this trend before COVID-19, and this will only continue.”
Leonard writes from Holstein, Iowa.