Before you determine where farmland values might go, determine where they’ve been. Then you can get a better handle on what to expect both short term and longer term.

Todd Kuethe, a Purdue University Extension ag economist, invited two of Indiana’s leading industry players in the farmland real estate market to help verify current trends and share thoughts about the future during the recent Purdue Top Farmer Conference.

R.D. Schrader, head of Schrader Real Estate and Auction Co. in Columbia City, Ind., and Howard Halderman, president of Halderman Farm Management and Real Estate Services in Wabash, Ind., shared their observations.

“We had more activity in 2021 in terms of land sales than at any time during the past seven to eight years,” Schrader said. “We sold farmland in 13 states, and we saw three times more sales at or above $10,000 per acre than in 2019, and twice as many at $10,000 or higher than in 2020.

“Sales were very strong in the last half of 2021. There were several sales that went 20%, 40% or even a higher percentage above appraised market value.”

Halderman agreed. His firm compares one farm to another based on soil productivity. “For the previous five years, land was selling at around $50 per bushel of corn productivity, and the trend was flat,” he said.

“In the first half of 2021, it started around $55, and by the end, it was at $80 per bushel. Even at the previous land value peak in 2013, it was only about $62 per bushel.”

Both Halderman and Shrader expect land values to continue increasing in 2022, although likely at a more moderate pace compared to the last half of 2021. “What we saw was similar to the last half of 2012, when President [Barack] Obama was reelected and fear about changes in capital gains drove the market,” Halderman said. “It didn’t happen — nothing changed, but that same fear about possible changes in capital gains surfaced again last year.”

Driving factors for farmland sales include:

Plenty of money. Both Schrader and Halderman said that investors returned to the market last year, especially individual investors within the U.S. Coupled with better commodity prices to farmers and a strong general economy, that meant there was money to spend on farmland.

Low interest rates. This continues to feed into higher land prices, they noted. “We don’t really see interest rates getting high enough to impact farmland values for at least another couple years,” Halderman said. “Compared to money markets and other options for investment, farmland is attractive.”

Inflation. Both Schrader and Halderman noted that when inflation picks up, it tends to have a negative effect on the stock market, but a positive effect on land values. More people see farmland as a hedge against inflation.

Farmland supply. More land moved in 2021, and the supply was still brisk in early 2022, Halderman said. “Part of it may relate back to people seeing strong land prices, worrying about future capital gains policy changes and deciding to sell,” he said.

However, he notes that even with increased supply recently, the percentage of farmland changing hands in any one year, around 2 to 3%, is just back to historic levels. For the past several years before 2021, the amount of land offered for sale was below-average.

Black swan events. Anything dramatic and negative that happens on the world stage could be a fly in the ointment for farmland prices, Halderman said. This could range from a major power invading another country to a major drop in U.S. exports. “We will also watch what happens with input costs for farmers,” he said. While not a sudden, dramatic event, the sharp rise in input prices to farmers could mean smaller profits and less money available for farmers to buy land.

Farmland buyers. Despite farmer fears about increasing control of farmland by foreign buyers, Schrader pointed to recent data from Iowa State University indicating that while percentages fluctuate, farmers still buy more farmland than anyone else. The historic average is 75% bought by farmers. He said many investors who buy land are local people who live in the community.

In 2021, buyers for farmland sold by Halderman were split 50:50 between farmers and investors, although the overall percentage for all land nationwide stayed closer to the traditional split, Halderman said.

“A farmer is inclined to bid higher than an investor for land that he has driven by for years, because he knows it is the only chance to buy it in his lifetime,” Halderman said. “There is a lot of money out there with individual investors or groups of investors, but they aren’t as discriminate about what they buy or as likely to be as tied to buying one piece of ground as a local farmer.”

Schrader added, “The number of investors and the amount of money out there sitting on the sidelines watching land markets tends to support land values at some level, for better or worse. We didn’t have that in the early 1980s when the land market bubble broke. If the local farmer couldn’t or didn’t want to bid, there might not have been anyone else to buy it. That’s not the case today. There would be other potential buyers.”