Two Overriding Questions in the Land Market
December 3, 2018
Currently, there are two important questions hovering over the
land market. One is whether there will continue to be enough buyers in the
marketplace to absorb or buy the land that comes up for sale? The other is will
we see enough land come onto the market for sale that it starts to overwhelm
the number of active buyers? As we know,
the amount of farmland sold on the open market the past five years was
less than the years leading up to the 2013 land price peak. Land prices
declined in these five years, but have been fairly steady more recently for
good quality farmland. The lower supply of land for sale balanced in
equilibrium with fewer buyers to keep land prices stronger than one would have
thought given lower net farm incomes.
The question is will there be enough buyers going forward? Beings farmers
typically buy 70-80% of the farmland that comes up for sale, the financial
stress of the current downturn in agriculture has and will cause some farmers
to back off land purchases. But overall, there is still a lot of individual
producers who have the capital to buy land. Also, local and institution
investors are in the market to buy if the price is right for them. As people
look for long-term, safe investments, interest in owning farmland is again on
The other part of the land market equation is the amount of land for sale.
Right now, we are seeing a small increase in the amount of land for sale.
In fact, Farmers National Company has 21% more for sale at the present
time compared to last year. The predominant sellers continue to be inheritors
or investors who are deciding for various reasons that now is the time to sell.
At this time, we have not seen a large increase in financially caused
sales of land by farmers. The market's thinking is that we may see more of
these type of sales over the winter and into 2019. Some of these sales happen
outside of the open market, but still seek available buyers who may not then
purchase in the open market.
As we see these two questions or sides of the land market play out into next
year, one result is that there is more caution among buyers. The other is that
sellers are having to be realistic in their expected selling price. Stay tuned
over the coming months as farmers work with their lenders to renew operating
loans, producers watch commodity markets for signs of better grain prices, and
world economic issues play out.
President - Real Estate Operations