September 30, 2019
At the end of the real estate presentation during the Farmers National Company Landowner Workshops, we pull out the crystal ball and discuss what might transpire during the next six months in the land market. Of course, no one can predict the future, but we look at what is currently happening and what we then think might happen based on the myriad of factors affecting agricultural land sales and purchases.
We do know that the Market Facilitation Program (MFP) payments authorized in 2018 and again in 2019 to partially offset agriculture's losses from the trade wars have had a positive effect on overall net farm income of producers. The latest USDA estimate of 2019 income was increased from $69 billion to near the long-term average of $84 billion. Part of the increase was from lower costs, but a large part of the improvement was due to the $12 to $16 billion of MFP payments sent to producers. These ad hoc payments help the cash flow of producers which is a positive for the land market. The unknown questions are how long will trade issues last and will the MFP payments continue until the issues are resolved.
Several other factors are currently supporting land values and these are expected to continue over the next six months. Historically low interest rates will remain in the near future which supports the lower capitalization rates for cropland. The other factor is that there has been a lower than normal supply of agricultural land for sale over the past few years. Even though Farmers National Company is seeing an increase in the total acres it is selling for landowners, the overall market remains slower.
Several risks face the land market over the next six months. US agriculture is experiencing rising debt and decreasing working capital. If these two trends continue without a change of direction, some producers could be forced to sell off a land asset which would put a few additional farms on the market for sale. Also, Farmers National Company is handling an increased number of larger acreage sales throughout most of its trade areas. The risk in these two factors is if there could be a tipping point in the land market when the supply of land for sale outstripped the buyer demand. At this time, this does not seem likely, but it is something the land market is watching.
Looking ahead six months takes us right up to the 2020 planting season. We will know the size of the 2019 crop and the resulting grain prices. Producers will have worked with their lenders to secure financing for the new year and know any additional actions they need to take in order to farm another year. To sum up the outlook for land values over the next six months, most believe we will continue in the fairly steady equilibrium that we have seen over the past several years. But, there are many uncertainties including trade issues, the world economy, weather in 2020, and government support levels that could impact the land market by next planting season.
Senior Vice President - Real Estate Operations
|Category: Agricultural Real Estate News|