High-Quality Farmland Is Still Inching Up In Price Across 18 States
Ag Land Sales 071223
The No. 1 question farmers are asking Paul Schadegg today is whether land values have finally hit a plateau after their long, multi-year run of growth.
That depends, he says, on the region where the farmer is located. In general, he sees a slowdown in price increases across the country but no lower prices for high-quality farmland.
“When we compare not just our company data but also data from the Federal Reserve surveys, we’re definitely seeing some settling, a de-escalation,” says Schadegg, Farmers National Company (FNC) senior vice president of real estate operations.
Along with that, he says there are fewer high-quality parcels of land coming to the marketplace.
Single-Digit Price Growth Now
In FNC’s mid-year land values report released Tuesday, it says the land market entered the period of de-escalation starting in the fourth quarter of 2022. The pace slowed as a result of increases in interest rates, inflation and input prices.
Increases in land values are now in the single digits instead of double digits, as reflected in the chart FNC provided which shows June prices for this calendar year as well as 2021 and 2022 across 18 states.
“What we're seeing is when high-quality land is offered to the market, there's no shortage of demand for that land,” Schadegg says.
The latest Rural Mainstreet Index (RMI) from Creighton University is less positive. Bankers surveyed estimate farmland prices in their area rose 4.3% over the past year, but the momentum stops there. The same bankers are forecasting 0% growth in farmland prices over the next 12 months.
Properties With Softer Prices
Jim Rothermich, an Iowa land appraiser, says he started to see a noticeable shift in land values and pricing in April.
“The lower quality land is getting hit the hardest,” says Rothermich of Iowa Appraisal. "In April and May, we were starting to see some softening on lower quality farms. And as a matter of fact, at auction, we're seeing an uptick and no sales and it's all lower quality farms."
Rothermich is even forecasting a 10% correction in land values over the next 12 months with current economics at play.
“Per my auction date, land market conditions in 2023 have been flat, but strong,” says Rothermich. “The number of land sales bringing at least $20,000 per acre sales has slowed considerably, and I expect this trend to continue.”
Read more of Rothermich’s comments in Tyne Morgan’s AgWeb story here:
Schadegg says he sees lower quality land prices are a bit softer and potential buyers are fewer and slower to bid.
“Land that has drainage issues, erosion issues, maybe some fertility issues, things of that nature, those are the properties that are being discounted just a little bit. Farmers don't want to pay a high price for a piece of land that they then have to go spend money on to fix some problems,” he says.
Schadegg adds that he hasn’t seen any uptick in no sales unless a reserve was set too high by sellers with unreasonable expectations.
Looking Ahead Through Fall
Schadegg says FNC currently has 107 listings, with 30-some of those scheduled to go to auction between now and the first part of September. He also anticipates high-quality land will continue to see strong interest through the end of the year.
What drives that continued interest, he says, is the opportunity people believe in with farmland.
“There's opportunity for people to purchase a valuable asset that has a track record of appreciation over a long period of time,” he says. “Then there's an opportunity for those individuals who have owned land for a long period of time to decide if now is the time to sell and capitalize on that investment or to hold onto it and let it continue to appreciate.
“The ag economy across the U.S. is pretty stable, and with fewer properties being offered to the market it creates a unique supply demand scenario that definitely favors the landowner. And that'll help maintain both the current and long-term value of farmland.”
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