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Mid-South farmland values steady for 2015

Mid-South farmland values steady for 2015
Changes in farmland values from 2014 to 2015? How is the Mid-South faring? Impact of  commodity markets and farm bill.

Going into the 2015 planting season how are farmland values trending? It turns out pretty well if you’re in the Mid-South. Other regions aren’t faring quite so well.

“On the whole, the price of farmland is steady to down slightly,” says Randy Dickhut, vice president of real estate operations of Farmers National Company. “Quality land has definitely stopped the rise it was experiencing although, once in a while, we’ll get a high sale. Those are fewer and further between.

“There is still demand for good land; it’ll sell well. Lower quality land, however, has seen a drop of 10 to 15 percent. That varies by state, of course. Some states have seen land values drop — even good quality — because the agriculture economy has slipped.”

What does Nebraska-based Farmers National Company actually do?

“We have local farm managers who are licensed real estate agents and real estate associates — independent contractors,” says Dickhut. “That means we have local experts in different states and areas. Our key business is managing farms and ranches for non-operating or absentee landowners. We’ll also sell those properties if the owners want; say the land moves from one generation to the next.

“But the bulk of our real estate business is from outside listings where our local agents are working to auction or sell the land.”

Commodity price outlook may impact more than farmers' bottom lines

Does the land price stagnation have anything to do with the new farm bill? Is it more to do with the drop in commodity prices?

“We don’t think the farm bill is the reason. There are several drivers. One is the commodity prices and farm profitability has declined from record profits experienced in recent years.”

Regional shifts

What about regional shifts?

“The biggest shifts have probably been in the northern plains and the North Dakota region. Part of that is due to sugar prices dropping starting about a year ago. The sugar beet crop — the major crop in the Red River valley — wasn’t as valuable and that impacted the land values.”

Meanwhile, in the Mid-South, “we’ve seen steady or strengthening prices. Land value trends there are slower to effect the region compared to, say, the Midwest. I think part of that is there’s been demand for farm expansion and there’s a lot of investor interest because of the price point of Mid-South land. The potential returns are greater there.”

In a survey of Farmers National Company agents, high-quality Arkansas farmland is going for an average of $5,000 per acre — the same as in 2014. Irrigated Mississippi acres are up $500 from the 2014 average of $4,500. Tennessee acres are up $175 over 2014 to $3,750.

Another reason Mid-South farmland has held its value: several years of excellent crop yields. Dickhut says those outside the area have been paying attention. “That certainly helps to point to a favorable ag economy for the region.”

Irrigation and precision leveling of land also plays a role in the Mid-South farmland values. “If you don’t get hit with a spring that’s too wet and you’re unable to get the crop in, irrigation is key to growing very good corn, soybean and rice crops. Investors look for that.”

What about the long-term future? Will farmland values only increase as the world’s population increases?

“I read the trends and expectations. I tend to look to back and see that historically and it shows farmland will increase 4 to 6 percent in value annually over the long term.

“I believe that after things settle down with the current softening of land values we’ll likely return to more normal valuations and increases in farm profitability. The current drop in values won’t be anything like the 1980s because we’re not facing the same market factors.

“We brought in some 120 million acres of cropland over the last seven or eight years with the commodity price run-ups. So, we can add more acres in the world. Those acres may not be as productive as U.S. farmland, but with new technology, we’ll figure out how to produce enough food. Historically, that’s what we’ve always done. Consider that we were warned about food shortages in the 1970s and yet there were a lot of low commodity price years.”

The other piece of this is water. “That’s the coming issue. The world will be looking for water resources to not only sustain the population but also grow and process the food we eat. So, I believe the issue won’t be food shortages as much as a lack of water. Tie that into everything that’s going on — climate change, population growth, biofuels needing water, on and on — and it’s a real concern.”

Dickhut says it’s also worth noting the current generational transfer of wealth in the country. “In many cases, a person’s assets or wealth is, or contains, land. We’ll see the transfer of land, or land ownership, occurring at a quickening pace than it is now.”

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