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Serving: United States
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Low interest rates, increased uncertainty influence land market

Financial health of producers is concern

There’s always a lot of interest in the land market and this year is no exception. In 2019, 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 Company 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,” said Randy Dickhut, senior vice president of real estate operations.

The biggest concern at this time in the agricultural land market is the financial health of producers, said Dickhut, who directs real estate brokerage for Farmers National Company. U.S. agriculture 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 said. Low commodity prices coupled with rising costs have squeezed profits and working capital causing farmer buyers of land to be more cautious, he added.

“Farmers National is seeing an increase in the number of farmland sales by financially stressed producers due to multiple years of reduced income,” Dickhut said. “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 pro-actively 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. Strong land values have supported the growing level of financing required for some producers, Dickhut said.

 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 said.

“As 2019 unfolds, the land market will remain on edge watching farm finances, weather, and trade issues,” Dickhut said. “The outcome of these and other unknowns will guide which direction land values will move over the coming months.”

Here’s a look at regional markets.

Iowa & Wisconsin

Location and quality are key drivers of land prices in Iowa and Wisconsin despite the overall slower land market. 

“There have been some strong sales for high quality farm land in Iowa and for recreational land in the right location for the buyer,” said Sam Kain, area sales manager for Farmers National Company. “We are starting to see increasing signs of financial stress among farmers.”

This is particularly true in the Wisconsin dairy industry as farmers either retire or sell assets including land. In Iowa, the stress on farmers varies by area depending upon crop yields the past several years. Farmers National is experiencing a growth in acres for sale in both states due to financial problems for farmers.

Buying interest for land has remained adequate for the amount on the market for sale, but the buyer profile has changed somewhat.

“The farmer buyer is being more cautious and more selective in the farms they will bid on. The 1031 exchange buyers have been active and continue to support current land prices. Investors are also active buyers depending on the type of land they are interested in,” he said.

Illinois, Indiana, Ohio, Michigan, Missouri, and Arkansas

Location and quality are key drivers of land prices throughout the eastern Corn Belt and Delta, despite the overall slower land market. 

“Good quality farmland normally sells well as will recreation properties in the right locations. But lower quality farmland saw a decline this past year,” said Roger Hayworth, area sales manager for Farmers National Company. “The overall agricultural real estate market has taken a sluggish turn when compared to a year ago. The uncertainty created by trade issues and projections of continuing lower farm incomes clouds the horizon for farmers and land buyers.”

Buying interest for land has remained adequate for the amount on the market for sale, but the buyer profile has changed.

“The farmer buyer is being more cautious and more selective in the farms they will bid on. The 1031 exchange buyers have been active and continue to support current land prices. Investors are also active buyers depending on the type of land they are interested in and the desired returns,” Hayworth said.

Ag lenders are starting to report that some of their borrowers are experiencing financial stress from multiple years of low commodity prices and farm incomes. Working capital is declining with the tighter margins putting pressure on loan repayment capacity.

Nebraska, Kansas, Oklahoma, and Texas

Land values throughout the Southern Plains states are as varied as the terrain.

“Farmers National Company has had above average sales activity in the region compared to last year,” said Paul Schadegg, area sales manager for Farmers National Company. “High quality land has sold well whereas lower quality land saw a decline in demand and price.”

East Texas is an important timber producing region and Farmers National Company 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.

North Dakota, South Dakota and Minnesota

Location and quality are key drivers of land prices throughout the Northern Plains despite the overall slower land market. 

“Good quality farmland normally sells well as will recreation properties in the right locations. But lower quality farmland saw a decline this past year,” said Brian Mohr, area sales manager for Farmers National Company. “We are starting to see increasing signs of financial stress among farmers approaching some of what we saw in the 90s.”

The stress on farmers varies by area depending on crop yields the past several years. Working capital for most producers is declining with the tighter margins putting pressure on loan repayment capacity.

Washington

Land values throughout Washington are as varied as the terrain.

“Farmers National Company continues to have good sales activity in the region,” said Flo Sayre, broker for Farmers National Company. “High quality land suited for the most valuable crops sells at a much higher price than dryland in the area. Land values have remained fairly flat for the past several years with marketing times extended for most ag properties. Many orchard properties are undergoing changes due to varietal replacement, labor shortages, low prices, and trade barriers. Rents on row crop farms are stable and dependent on water and crops grown.”

Georgia

Land sales prices for winter and spring of 2019 across Georgia have mostly mirrored 2018. However, there have been a few sales with very strong prices, but those are few and very far between, reported Wayne Groover, real estate broker with Farmers National Company. Sales and availability of quality farmland remain limited.

“Lower quality farmland and recreational land values are stable. There seems to be more than adequate market supply and only tracts with realistic pricing are selling. Timberland values are tracking timber prices, but seem to have stabilized,” Groover said.

Sales of transitional land (tracts that are in areas seeing heavy development pressure) seem to have cooled a bit as supply and demand have apparently come into balance. Prices are still good but seem to have peaked, Groover said.

“Georgia is a very diverse state and comments here relate primarily to rural to semi-rural areas. There is a tremendous inventory of land for sale in Georgia, the vast majority of it appears to be well overpriced. However, most sales seem to reflect values established over the last two to three years, i.e. values seem to have stabilized, for now at least,” he said.

Source: Farmers National Company, 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. 
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