Two leaders in ag real estate shared views about where land values have been, where they are now and where they’re going at the Purdue Top Farmer Conference. R.D. Schrader is president of Schrader Real Estate and Auction Co. based in Columbia City, Ind. Howard Halderman is president and CEO of Halderman Farm Management and Real Estate Services, Wabash, Ind.

“We’ve seen a historic increase in land values from the last half of 2021 through 2022,” Schrader said. “Many factors still support strong farmland values. Increasing interest rates apply downward pressure, but inflation pushes values up because land is a hedge against inflation. Look for a wrestling match between rising interest rates and inflation this year in terms of impact on farmland prices.”

Halderman assessed the situation much the same way. “The increase over the past couple years was historic,” he said. “Interest is still strong, but we’re seeing more variability in support for high land values.

“I’m looking for an increase around 5% for 2023, more in line with historical trends.”

Past performance. Farmland values rose nearly 40% from early 2021 through 2022, Schrader said. The Purdue University land value survey conducted last summer indicated increases approaching that level. Schrader believes it was on target, and noted that the same trend caught fire across the entire Midwest.

“We saw some top sales in the third quarter of last year,” Halderman added. “Based on our sales, that’s likely when values hit a peak.”

Schrader said high-quality, desirable farmland sold as high as $19,000 per acre within the past year. That doesn’t mean prices were that high everywhere — different pockets tend to vary in how high land prices climb.

Present situation. Some pressure from interest rates began to become evident in the fourth quarter of 2022.

“We sold farms at near-record levels, and then one would bring less than expected, although it still sold well based on historical prices,” Halderman said. “The ‘hassle’ farms are tending to be a bit softer — farms with smaller fields and waterways that make them more difficult to farm.”

Both Schrader and Halderman agree three key factors impact land values most. “Farm income is by far the most important,” Halderman said. “The second is supply of farmland, and the third is interest rates. Even if mortgage rates reached 9%, higher than expected, I’m not sure land values would drop if farm income remained high.”

Future outlook. “There are still good crop prices farmers can lock in for 2023,” Schrader said. “Farm income prospects overall still look fairly strong. For supply of farmland, many people who were thinking about selling cashed in. We’ve already noted that interest rates will likely stay up if inflation stays up. But the other two should offset it, resulting in a more moderate increase in values, but still strong demand.”

Year in and year out, about 70% of farmland buyers are farmer operators, and about 75% of the remaining 30% are local investors, Halderman said.

“Yes, there are institutional investors,” he said. “But they tend to come in when expected rates of return are in line with what they expect. They haven’t been in the market in a big way during the last couple years, but they’re still there. They provide a nice floor. Should prices back off, expect them to step in again.”