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Farmland Sales Hard to Find as Growers Hold Tight, Keeping Land Value Fairly Stable
Four years ago there wasn’t enough farmland to go around. Growers looking to expand their holdings, outside investors who’d never set foot in the state of Iowa much less in a cornfield, and people looking to bolster their retirement funds were snapping up land as fast as aging farmers hoping to spend their retirement on a Florida beach could sell it.
It was a perfect storm for both sellers and buyers.
Things are much different today, brokers told Successful Farming. Demand is still strong, but nobody’s selling as land values have declined amid falling crop prices, leading to what dealers are saying is the fewest available farms for sale in a generation. That, in turn, has kept prices afloat despite declining crop futures.
“We don’t have very much for sale,” said Sam Kain, the national sales manager for Farmers National in West Des Moines, Iowa. “I’ve been doing this for 30 years, and this is as few as I’ve ever seen. Farmers had a few good years, the conservative ones anyway, were able to put money aside and now there’s no pressure to sell, at least not for the time being. All we’re seeing selling is estates.”
The lack of available land has kept the price of farms up despite corn prices being down by more than half from their peaks in 2012. The average per-acre value of farmland in the U.S. in 2016 was $3,010 an acre, down from only $3,010 an acre the prior year.
In Iowa and Illinois, the biggest producers of both corn and soybeans, the average price of farmland was $7,850 and $7,400, respectively. The value in Iowa fell 1.9% year-over-year while Illinois prices declined 1.3%. Missouri and Wisconsin land values rose while those in Minnesota and Indiana were unchanged.
“The lack of supply is keeping farmland values fairly stable,” said David Klein, the vice president and managing broker of Soy Capital in Bloomington, Illinois.
Land values are holding steady likely because farmers who saw they could get $12,000 an acre for less-than-stellar land in 2012 or 2013 are now only being offered $8,000 to $10,000. While that would’ve been a pretty penny prior to the boom five years ago, it doesn’t carry the same luster it once did.
The good news for farmers looking to purchase more land is that their competitors – investors – aren’t in the market right now because the rate of return on the land isn’t strong like it was in 2012 when corn and soybean prices were high, Klein said.
That means some farms, though many with marginal land, can be had for a decent price. Also popular is land on which wind farms can be built, especially in Iowa, Illinois, and Indiana, said Klein.
“The biggest price decreases have been in the farmland that’s kind of like a fixer-upper house, which can use some cleaning up and has drainage issues or needs conservation work to give it some curb appeal,” he said. “The I-states have a lot of expansion projects going on right now. If you took a flight to central Illinois just north of Decatur, there are wind turbine foundations being built.”
Companies are building wind farms in northwestern Iowa, and more are on the way, Klein said.
Real estate industry professionals said the best bet for growers who want to expand their holdings by purchasing land close to their current farms is getting to know their neighbors in case something comes available. Hiring a broker also doesn’t hurt because they have resources most people don’t.
It’s unlikely, however, that growers will find many good deals in the current environment of strong demand and little availability, said Ernie Goss, an economics professor at Creighton University in Omaha, Nebraska.
Goss said surveys conducted by his department are showing that farmland prices will hold up better than income as commodity futures likely won’t rise much for at least a couple of years unless there’s a significant weather event. Foreclosures haven’t increased to an alarming degree, so those waiting for their neighbors to throw in the towel might have to wait a long time.
It’s likely those who want to buy farms and have a chance to do so know they aren’t getting the best deal in the history of land transactions, but many are willing to spend the money to get what they want as long as the land is close to their current holdings and decent quality.
Demand for land likely will stay strong for a while as long as interest rates are still low and consolidation within the industry continues, Klein said. That means those hoping to expand will have to keep a keen eye out for anything in their area that becomes available since their neighbors are holding tight to their farms.
“Overall, farmland values have remained stable through the first half of the year,” Klein said. “Stabilizing crop prices, limited supply, and low interest rates are contributing to land prices stabilizing, as are areas that have alternate uses rather than just agricultural. The highest quality square tillable farms are selling very well, but there are so few available.”