Farmland values are up sharply as farm incomes soared, new buyers entered the market even as the number of farms offered for sale rise, reports Farmers National Company,(FNC) Omaha, Nebraska.
“What started as a gradual strengthening of sales prices last fall escalated into aggressive bidding the past five months to generate new highs in prices paid for farmland in many areas. Prices for good quality farmland are up 15% to 35% depending on the location,” reports Randy Dickhut, senior vice president of real estate operations with FNC.
Higher commodity prices and better farm incomes, in part from government payments, propelled grain producers to be more aggressive bidders for farmland during the last few months of 2020, he notes. More favorable financial conditions for many farmers in 2021 also boosted their interest in purchasing land. Additional buying interest during the past year came from individuals looking for an inflation hedging investment or the security of a farmland asset, too.
In the past 12 months, most areas of the Grain Belt experienced an increase in the amount of land sold starting with additional sale activity last fall. A number of states saw a 10% or more bump in the number of transactions while others had a more moderate increase in sales, he reports.
“Non-operating landowners became more active sellers of land during 2021 with the higher prices drawing their attention as well as the potential threat of tax law changes,” Dickhut says. For example, FNC saw a 62% boost in the number of acres sold by the company during the past 12 months compared to last year along with a 14% increase in the number of transactions. The company also set a new record in real estate sales volume with more than $765 million of land sold during the year, he explains.
With the arrival of the New Year, the question in the land market is whether the strength in prices will carry forward. At this point, if the fundamental factors supporting land prices continue in the current direction, the market should be firm to somewhat higher, he says. Commodity prices and farm incomes will need to remain above long-term averages to provide the financial ability for producers to consider buying more land. If the supply of land for sale doesn’t outpace the demand from producers and investors, the land market will remain in equilibrium at the higher prices, he states.
Finally, everyone will be watching interest rates as to when they will rise, by how much and what effect there may be on land prices.
“If any of these underlying factors change or unexpected world or national events come about, the land market could pause and even change direction depending on the size of any changing factor. For now, the outlook for the land market is positive as farmland continues to be a safe, long-term investment,” Dickhut says.