March 18, 2019
The decline in land values since 2013 has been gradual and
reasonable given the lower commodity prices and farm incomes. Over the past two
years, land values stabilized and even bumped up a bit in several states. Real net farm income has fallen to levels only seen six years
since 1990 with three of those six being during the most recent four years (Ag
Economists 3/11/19). As we have discussed before, the low supply of good
farmland for sale has helped support land prices in most areas. With a farm
only coming up for sale once in three or four generations, there has been
adequate demand to buy the good farms. Lower quality farm prices have softened
more over this period due to being less efficient to farm. So what is happening
now in land values as the winter auction season winds down?
At Farmers National Company, recent auction results tell a mixed story in land
prices. In Kansas for one, several auctions brought strong prices corresponding
to what the land would have sold for two years ago. In other states, sales
prices have ended up where expected or a little softer. With lower quality
farmland, auction prices can be stable to lower than expected depending on the
area. Local differences in how aggressive the buyers are, recent crop yields, and
amount of land on the market are important influences on bidding activity and
final sale prices more so than any overall trend.
The one wild card affecting land values that has been talked about for several
years now is the question of how many additional land sales will there be due
to financial stress among farmers? Till now, we have not seen that many
stressed sales in the open market. Many of these sales happen quietly behind
the scenes between a farmer seller and an investor buyer before the lender
forces a sale of assets in the marketplace. But as the re-financing season
wraps up before planting the 2019 crop, most expect to see a few more land
sales over the coming months from financially stressed operations. The question
becomes how many more sales in an area will it take to put downward pressure on
land prices? At this time, buying interest in most areas has been adequate
enough to purchase the good land that comes up for sale.
Putting all the what ifs together, including trade issues, weather, global
commodity demand, and interest rate direction, along with the expectation for
continued farm financial stress, it becomes reasonable to expect land values to
take another small tick downward as buyers continue to be cautious in making
purchase decisions. On the other hand, if several of the uncertainties are
resolved favorably and the supply of good farmland for sale remains low, there
will be support for current land prices. Time will tell us the answers as we
move through 2019.
President - Real Estate Operations
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