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Current Uptick In the Land Market Caused by Optimism and MFP Cash

February 10, 2020 

Sale prices for good quality farmland have shown a slight uptick since the first of the year. Despite the struggles of a late harvest and yields generally below trend lines, farmer and investor buyers are bidding up for good cropland when it comes on the market. One overriding factor for stability and strength in the land market has been and continues to be the lower amount of farmland for sale. Fall and early winter farmland sales transactions are down around 15% from last year.    

  

Several new factors are also contributing to buying interest in farmland. Movement forward on two major trade agreements brings optimism for renewed and possibly increased agricultural exports to three major trading partners. Even though grain prices are languishing right now due to uncertainties surrounding coronavirus, there is hope in farm country that grain prices will improve significantly from greater export business and increased demand. 

  

The other factor supporting land prices is the huge influx of government supplied cash to producers from the MFP payments. With the last of the 2019 payment on the way, farmers have extra cash at an important time of the year when they are paying rents, taxes, and final spring input costs. The extra payment lessens the need to sell grain at these levels or to increase operating debt. This all leads to having more interest in purchasing a farm at this time. 

  

Each spring, farmers have to be optimists in order to plant a crop and hope that all turns out well six months later with a profit. There are some question marks ahead that could change the outlook for commodity prices and farm profits. The USDA is already predicting net farm income will be down 9% in 2020 due to the expectation that there will be no further MFP payments. Secondly, there is the question whether ag exports to China will pick up soon and in larger amounts. World events and grain production this year can positively or negatively affect commodity demand and grain prices for US producers.    

  

Land is a long-term investment and for now, the current optimism and cash influx are helping give a boost to good cropland.    

Randy Dickhut  

Senior Vice President - Real Estate Operations 

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