According to the Farmers National Co. of Omaha, land values and the market are “on edge trying to decide if prices will be pressured down or if the market will establish a bottom.”
The company says land values have exhibited an underlying base of strength from several factors, including historically low interest rates, low supply of land for sale and adequate buying capital.
The other side of the land value equation is increased uncertainties that could weigh down the market.
“Despite the slower land market and cautious buyers, Farmers National Co. is experiencing a strong 29 percent increase in the number of acres sold by the company compared to last year and 22 percent over two years ago,” said Randy Dickhut, senior vice president of real estate operations.
Dickhut said that Farmers National is drawing landowners of all sizes by its successful marketing and sale of both larger and smaller tracts of land.
“Land market experience provided by local Farmers National agents coupled with the nationwide marketing presence of the company is the expertise that enables us to sell any size landholding,” he said.
The biggest concern at this time in the agricultural land market, Dickhut said, is the financial health of producers.
According to Dickhut, U.S. agriculture is in its sixth year of a downturn, with overall net farm income for 2019 projected to be down 50 percent from 2013. Working capital has declined almost 70 percent since 2012, and inflation-adjusted farm debt is at the highest level since the 1980s.
Low commodity prices, coupled with rising costs have squeezed profits and working capital, are causing farmer buyers of land to be more cautious, he said.
“Farmers National is seeing an increase in the number of farmland sales by financially stressed producers due to multiple years of reduced income,” Dickhut said. “Some of these sales are sold quietly and not exposed to the marketplace to get top dollar. Other sales are coming from producers who are proactively liquidating a land asset to improve their balance sheet and cash flow. Farmers National is now handling an increasing number of land sales and receiverships for lenders.”
For the Nebraska, Kansas, Oklahoma, and Texas region, the company said land values are as varied as the terrain.
“Farmers National Co. has had above average sales activity in the region compared to last year,” said Paul Schadegg, area sales manager for Farmers National. “High-quality land has sold well, whereas lower quality land saw a decline in demand and price.”
Schadegg said that with the uncertainties in agriculture right now, people are reaching out for someone they can trust to sell their land or to help them buy a property. The company is fielding an above average number of calls from investors wanting to purchase land and its agents are also getting calls from people who are thinking about selling in the coming months.
“If someone is thinking about selling their land or buying land as an investment, they for one need to know the local land market, as each area is reacting somewhat differently, which could influence price expectations. Buyers and sellers need to be knowledgeable in today’s land market, or they need to seek assistance,” he said.
In March, the 2019 Nebraska Farm Real Estate Market Survey reported that the market value of agricultural land in Nebraska declined by 3% over the prior year to an average of $2,650 per acre. That marked the fifth consecutive year of downward pressure as market values have dropped approximately 20% since reaching a high of $3,315 in 2014.
According to the survey, the highest reductions in irrigated cropland values were seen in the northwest, southwest and south districts.
“Survey participants indicated policies guiding the use of water as a key driver in the value of irrigated properties across these three regions,” the report noted.
Grazing land experienced the most significant decline in value, at 4%, led by steep drops in the Central District. While statewide values declined for all types of land, a small number of areas saw an increase. Most notable was a 6% increase in hayland values in the eastern district of Nebraska.
With a few exceptions, rental rates were generally down by 2% to 6%.
Overall, Dickhut said, U.S. agriculture remains in solid financial condition despite weakening on several fronts. Debt-to-asset ratios are worsening, but remain below recent higher levels. The number of farm and ranch bankruptcies is increasing but still far below what was experienced in the 1980s. Land values that have held up better than expected have supported the growing level of financing required for some producers.
With the known problems that agriculture and the land market are facing, he said there are also uncertainties that will have an impact on the sale and price of ag land. Immediate concerns include low grain and milk prices and growing season weather. Trade issues continue to have short-term effects on commodity prices and production costs, while the potential for ongoing negative impacts becomes larger the longer trade is disrupted.
Interest rates look to be stable for the foreseeable future, but world economic performance is more uncertain. Dickhut said.
Agricultural land values have been surprisingly resilient over the past two years, he said, despite the continuation of depressed farm incomes. Supportive factors combined to hold land prices in most areas, especially for good quality farmland.
Concerns, according to Dickhut, are building in the land market primarily surrounding the financial health of farmers and ranchers.
“As 2019 unfolds, the land market will remain on edge watching farm finances, weather and trade issues,” he said. “The outcome of these and other unknowns will guide which direction land values will move over the coming months. With the land market on edge, buyers and sellers of land need the most trusted advice available to navigate the uncertainties.”
Farmers National Co., an employee-owned company, is the nation’s leading agricultural landowner services company. It has sold 3,876 properties and more than $2.23 billion of real estate during the last five years. The company manages more than 5,000 farms and ranches in 29 states comprising more than 2 million acres.
For more information on our company and the services provided, visit its website at www.FarmersNational.com.