MT. JULIET, Tenn. (DTN) -- Farmer-operators were the highest bidders at 75% of Farmers National Company land auctions in 2022, a year marked by record-setting sales at the auction block.
Even though investors weren't as successful at winning auctions, they were "certainly part of the equation as they have been active bidders at most sales to a point that has set the floor on values," said Paul Schadegg, senior vice president of real estate operations for Farmers National Company. He expects investor interest in farmland to continue, arguing they see land as a long-term investment that diversifies portfolios and hedges against inflation.
In 2022, 76% of the company's sales were conducted through competitive auctions, pushing the average price for high-quality land to $16,000 per acre in Illinois, $15,400 per acre in Iowa, $13,000 per acre in Indiana and $12,000 per acre in Nebraska and South Dakota, according to Farmers National Company data. The Kansas City Federal Reserve reports farmland values rising between 20% to 34% across the Corn Belt from 2021 to 2022.
"What we are seeing is a true supply/demand scenario," Schadegg said in news release. "There are simply more buyers willing to bid on the limited amount of land coming to the market. Current commodity markets and strong cash rents provide buyers with the necessary returns to meet their investment criteria while giving them the opportunity to expand operations or add land to their investment portfolio."
Schadegg expects land values will remain strong in 2023, although there may be fewer record sales, more headwinds and less land sold on the auction block.
Jay VanGordon, Farmers' National Company's area sales manager for Indiana, Ohio, Michigan and Kentucky, said quality remains the top factor in potential selling price. Strength in the corn and soybean markets has driven profitability to support those levels.
"Looking forward to 2023, we are seeing a smaller amount of land for sale in the east for the first quarter of 2023, as many landowners who have been considering selling or were motivated to sell by high prices have done so. We are also seeing some softening of farms with medium-quality soils and lower tillable percentages as well."
Farmers National area sales managers generally concurred that high-quality land is selling well and attracting a large pool of buyers. Drought-stricken regions, like Texas and Oklahoma, have seen notably less interest in dryland pasture.
Tom Schutter, who manages sales in Iowa and southern Minnesota, said the number of sales in his region declined slightly from 2021, and he anticipates that higher interest rates and input prices will eventually soften demand for land.
"But before we see a drop in value, we will have to burn through a couple years' worth of liquidity, which may take more time than originally anticipated," he said.
While national average net farm income has set records over the past two years, Schadegg said higher input expenses and interest rates could take a bite out of 2023 and beyond. Erosion of operator equity could add some pressure to farmland values.
"So we sit at a somewhat precarious point in time where opportunity exists for both land sellers and buyers but is dependent on the continued strength of the agriculture economy to stabilize or grow."
You can read more of Farmer National Company's regional reports here: https://www.pappasmarketing.com/….
Katie Dehlinger can be reached at katie.dehlinger@dtn.com
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