The sharp increase in land values from a year ago that was primarily driven by strong commodity markets has slowed, but those values built over the past three years are being maintained, according to recent sales data from landowner services firm Farmers National Company. Buyer demand remains strong for good quality cropland across the Midwest, while the supply of land for sale remains limited.
This also comes amid rising interest rates and inflation in the property market.
“These factors further play into the dynamics of the supply/demand scenario and remain a large factor in supporting current values in early 2024,” said Paul Schadegg, senior vice president of real estate operations, Farmers National Company. The employee-owned firm has representation in 25 states around the U.S., with a heavy emphasis on Heartland states.
Who are the buyers? Successful farmland buyers continue to be local farmer/operators in nearly 80 percent of transactions. Available cash has played a significant role in how aggressive buyers are able to bid at land sales within the past several years.
Along with the increase in lending comes the expense from interest, which will cut into potential net farm income in the coming year for farm operators.
What continues to motivate land buyers? Buyer motivation varies between a farm operator and a land investor in that a farm operator is typically interested in land that will fit well into their operation, is adjacent to other owned land, or has historical ties. The land investor typically looks for return on investment, a diversification to their investment portfolio, or potential hedge against inflation.
What dynamics will affect land values? Commodity markets and input costs will impact land values in the short term. As farm operators make cropping plans for 2024 and buying decisions for expansion of their operations, the key word will be profitability. Easing interest rates and reduced inflation across the country will bring some positive light to balance sheets.
However, the current world conflicts, geopolitical events, and U.S. political processes have the opportunity to create both positive and negative impacts on the ag economy and subsequent land values.
“More than 55 percent of these transactions were conducted through the company’s auctions, providing true market exposure. While this is off the extraordinary pace set in 2021 and 2022, it remains above the five-year company averages,” Schadegg said. “These strong sale results are a true testament to our professional agents and managers in the field and their commitment to achieving our client’s goals in marketing agriculture properties.”
Moving into 2024. Many landowners are making the decision to take advantage of the current land value strength and sell into a market with a large pool of motivated buyers.
At the same time, other landowners have contemplated the current appreciated value of their land assets and determined there is no better investment outside of land. These landowners are making the decision to retain ownership and further limit the available properties coming into the market.
Of course, things vary from region to region, despite the overall trend toward steadiness.
For example, Jay Van Gorden, area sales manager for Farmers National Company’s Eastern Region, said he continues to see strength in overall land sale values in the second half of 2023 although with a reduced volume of properties for sale for across much of the area compared to the previous two years.
Then, the central area of Iowa, saw heavy volume in the second half of 2023, said Tom Shutter, another area sales manager. After lighter volume in the beginning of the year, Farmers National Company has seen a cyclical pickup in farm sales pre- and post-harvest, with the majority of those sales occurring in November and December.
In western Nebraska, northwest Kansas and northeast Colorado over the past six months, the agricultural land market has shown mixed trends. High-quality farmland sales remain strong, maintaining high prices. However, lower quality land or land with inherent issues has been slightly discounted, said Cole Nickerson, the area’s sales manager.