MT. JULIET, Tenn. (DTN) -- Farmland values are finding a balance between the support of long-term appreciation and limited inventory and the pressure of interest rates and farm profitability.
Farmers National Company sees signs of a settling, but not falling, farmland market as long-term appreciation maintains its status as a valuable investment.
"A lot has changed in the past 12 months, and even more has changed within the past five years," said Paul Schadegg, senior vice president of real estate operations at Farmers National Company.
Propelled by strong commodity markets, moderate interest rates and buyer demand, farmland values set record after record. Now, a few years into a growing corn surplus, concerns grow about farmers' profitability at current prices levels.
For more, please read "A Uniquely Bearish Possibility in Cash Corn Price History" here: https://www.dtnpf.com/….
"Moving into the second half of 2023 and the first half of 2024, we've experienced significant increases in interest rates, declining grain markets, and inflation," Schadegg said. "Despite these negative pressures, the land market has remained relatively resilient but shows signs of settling in general, including single-digit decreases in specific areas."
Highly productive, mostly tillable land is still selling from prices near recent records, said Jay VanGorden, who manages sales for Indiana, Ohio, Michigan and Kentucky at Farmers National.
"Less-productive and lower-tillable-acreage farms have seen a 5% to 10% decrease in value but still much less reduction than grain prices, which are 25% to 30% lower over the past one-and-a-half years," VanGorden said.
Schadegg pointed to the role long-term price appreciation has played in the historical value of farmland. Over the past 25 years, land values followed the agricultural economy's ups and downs in a stair-stepping fashion: Values would rise with grain prices and farm profitability and then plateau. Each plateau has set a new value standard sustained through production, demand, and profitability.
"A significant factor in maintaining the level of land values has been investor interest in the market," he said. "While these bidders are not always successful buyers of land, they are certainly involved in setting the floor on values as they bid up to the levels of their investment criteria. This segment of buyers also considers the long-term appreciation in value we have experienced in the past 25 years, the potential for future appreciation, and land's value as a diversified asset."
In VanGorden's region, development plays a big role in propping up the market.
"Farmer operators remain the primary buyers of farmland, but prices in the eastern region are also driven by investor interest and 1031 tax deferred exchange buyers around several of the larger cities in our eastern territory, which can drive prices higher especially for several counties out in the countryside as sellers of development property look for replacement land," VanGorden said.
Buyers considering land purchases in the second half of 2024 are weighing higher interest rates and lower profit potential in their decision making. Schadegg said he expects land values will adjust according to their location's dynamics.
"Areas with strong supply/demand scenarios, an expansion of alternative land use projects and irrigation water concerns may experience more dramatic increases or decreases in values," Schadegg said. "There remains a strong appetite for land as an investment from outside investors and ag producers. The investor is looking for an asset that will produce an annual return, while the ag producer may look for expansion opportunities."
Demand for quality farmland remains high among both types of buyers, but much of the future direction of farmland values is determined by the financial wellbeing of farm operators, who make up the largest pool of farmland buyers. If profitable conditions are limited, it dampens the desire to buy. If farmers back out of the market as buyers, that's an indication the market's likely to head downward.
For now, Farmer's National said business remains robust, with listing volume and closed transactions keeping pace with 2023 and running ahead of the company's five-year average. Activity and interest are growing ahead of the fall season, although Schadegg noted that many upcoming sales have transitions back to standard listings as sellers reserve the option to negotiate values.
A roundup of regional insights can be found here: https://www.pappasmarketing.com/….
Katie Dehlinger can be reached at katie.dehlinger@dtn.com
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