FNC: Ag land values equalizing
OMAHA, Neb. (FNC) – Land price movement has been in the forefront for farmers, landowners, lenders and land brokers for a decade now during this historic run-up in land values.
Overall average values of crop ground and grasslands have slipped from the highs of several years ago, but are still historically strong, according to Farmers National Co., the nation’s leading farm and ranch real estate company.
But where are land values heading?
“The agricultural land market is in a time of equilibrium as the supply of land for sale is fairly in balance with the demand to buy land,” said Randy Dickhut, senior vice president of real estate operations for FNC. “The supply of ag land for sale is generally on the low side of normal as some landowners are deciding whether to sell now or keep their land.
“Demand to buy land has trended lower over the past few years as buyers are being more cautious.”
The drop in commodity prices has caused land values to continue to soften in Iowa, said Sam Kain, national sales manager for Farmers National Co. based out of
West Des Moines. But, land values remain at a comparable level to June 2015, declining by $500 per acre on average for high quality land.
“The limited amount of land for sale right now has definitely limited the decline in land values,” Kain said. “Although we have seen a decline in all types of land, there is still strong demand for quality land and there appears to be renewed interest from investors.
“Farmland has always been a very stable investment, which is appealing to investors seeking a secure place to put their money.
“The majority of ag land sold in my work area has been to settle estates and still goes to farmer buyers though.”
The continued threat of rising interest rates and lower commodity prices will put pressure on land values in the near future, Kain said. “But considering all that has happened in agriculture, we still have a very good land market.”
According to an FNC survey, farmers and ranchers, who were the predominant purchasers of land that came on the market during the past decade, are not being as aggressive now when compared to recent years.
Farm and ranch profits are down and lenders are being more careful in what they will lend on land purchases.
Furthermore, investor interest in farm and ranch land declined as land values moved higher during the last four to five years and the return on investment slipped.
But individual and fund investors are moving back into the land market as land prices soften.
FNC reports that, overall, demand for good land remains solid, but interest in lower quality crop ground and grassland is less in most areas.
“With the supply of land for sale being on the low side,” Dickhut said, “the land market is stable at this time.
“But, factors affecting land values can surface over the next few years to move the land market in either direction.
“If the supply of land for sale increases due to lower crop and livestock profits or landowners decide to sell now for various reasons, the land market equilibrium could change pressuring land prices lower. Demand to buy land by farmers and ranchers will change with profitability forecasts.”
Changingmacro economic factors affecting interest rates and alternative investments could change the demand for land either up or down. Besides economic considerations, there is always a reason to sell or buy that may end up being more important than where land values are at during any given time.
“Farmers National experts noted that during this time of relative market equilibrium, it is advisable to have a professional assist in the buying and selling process,” Dickhut said. “If selling today, assessing the local land market and knowing how to most effectively market and sell each farm or ranch is the key to achieving the best price.
“If buying land, knowing what land to buy for the best return and value takes diligence and expertise. No matter if land values move
higher or lower over the next few years, it is always important to have a professional with expertise and knowledge working for you.”
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