Farmers National Co. reports that in eastern North Dakota and South Dakota, its representatives are seeing a “slight increase” in the selling price for good- to high-quality cropland for the first time in three years.
Even though farm incomes have been challenged the past three years, farmers are competing to buy good-quality cropland, says Brian Mohr, area sales manager for Farmers National Co. in Garretson, S.D. “Farmers are interested in adding the right type of acres to their operations and seem willing to bid up to get the land purchased.”
However, rangeland in western South Dakota has not seen the buying interest or any strength in prices at this time, he says.
What’s next for land values?
Randy Dickhut, senior vice president of real estate operations for Farmers National Co., says a number of positive factors support current land values. But some factors on the horizon could negatively affect land values.
“The industry has experienced a post-harvest bump in land prices in most grain-producing areas,” Dickhut says in Farmers National Co.’s recent annual report on land values. “With above-average crop yields in most locations, farmer optimism has increased, as has the bidding for quality cropland. The supply of land on the open market remains low, while the number of buyers and demand is adequate for what is on the market at this time.”
Continued low interest rates also are helping create a demand for ag land as a long-term investment for individuals and institutional funds.
“In general, there is still enough purchasing power in the hands of farmers to compete for good land or land that helps grow one’s operation. We are also seeing a small increase in 1031 tax-deferred exchange buyers as they move to trade into different land or to diversify out of other real estate holdings and into cropland,” Dickhut says.
Current farm economics are not conducive to strength in the land market, Dickhut says. Low grain prices are keeping overall farm income levels depressed. Lower incomes are reducing the cash flow necessary to finance crop inputs, equipment needs and land payments, leaving less cash for land purchases.
Individual and institutional investors are well aware of the lower grain prices and incomes. The resulting reduction in the return on investment for land has kept some investors out of the land market during the past few years, he says.
Another factor that may weigh on land prices is that lenders are being more cautious in the amount of money they will lend for agricultural land purchases, Dickhut says. This could dampen demand, as farmers and ranchers are the predominant buyers of crop and grazing land.
“Cash flow and equity concerns of farmers could generate additional land for sale in the market as some producers liquidate either land or equipment to shore up their finances. The magnitude of these additional land sales will probably be small and vary by region, but the potential for an increase in the supply of land on the market bears watching,” he says.
The final factor that could have a downward effect on land values is the outside influences. This could include negative outcomes for trade that U.S. agriculture depends upon, unexpected consequences from tax laws and potential changes in the next farm bill.
Source: Farmers National Co.