A Region-by-Region Look at the 2018 Farmland Market
Here’s what farmland real estate agents from across the country told Successful Farming magazine about the current farmland market in their regions, including their best take on where opportunity lies.
Ray Brownfield, ALC
Today’s market: Brownfield calls it firm, on average. “If it’s high-quality Class A land, well-drained, and all tillable, it’s actually showing a slight uptick in value. There just isn’t a lot of this on the market right now, and there are usually two or three surrounding farmers who want it,” he says.
Midpoint value: For the A ground, it’s about $10,500 an acre in Illinois and perhaps as high as $12,000 in neighborhoods with more bidders. B and C grounds fall in a wide range of $5,500 to $9,500, Brownfield says. “Sellers always think their farm should be worth more,” he adds. “Farmland buyers, however, tend to do their homework. They know what it’s worth.”
Who’s buying: There is some interest from outside investors, but a lot of that has tailed off lately, Brownfield says. “They need to see 3.5% or greater ROI to be interested in farmland. Today, 2% or 2.5% is about the best you can project here.” Most sales are to existing farmers who want to expand, says Brownfield.
Opportunity: “I usually am a proponent of the Class A land. It almost always appreciates in value and it can usually withstand weather setbacks better,” says Brownfield. “I might look at that B ground, maybe with a little more slope or irregular fields. With today’s corn and soybean genetics, a good farmer can make a Class B soil yield on par with an A, and it’s $2,000 an acre less to buy it.”
- Read more: Farmland Seller vs. Buyer Motivation
Roger Hayworth, ALC
Area: Indiana and Eastern Corn Belt
Today’s market: “The market for high-quality land is stable in our area,” says Hayworth. “Where the soils aren’t as good or there are drainage or fertility problems, the market is off 2% to 5%. There’s not a lot of land on the market right now, and that helps hold prices up.”
Midpoint value: In Ohio, good-quality farmland falls in a range of $7,000 to $7,500 per acre, he says. “Where there’s extra competition, it could go to $9,000. Or it might fall to $6,000.”
Who’s buying: “Farmers who didn’t buy five years ago have some residual cash to do so now,” Hayworth thinks. “They can still generate decent cash flow if corn stays near $4 per bushel.” Outside investment funds, which like to generate a 5% ROI, aren’t nearly as aggressive today as they were a few years back, he adds.
Opportunity: “I’m always amazed when three different people look at an 80-acre property and have three completely different views. Opportunity is how it fits your situation. Consult with people you trust and do your own due diligence. You’ll see opportunity,” Hayworth says.
Chuck Wingert, ALC
Area: Minnesota and Upper Midwest
Today’s market: It’s strong, Wingert says, with a 3.5% increase in the value of high-quality land in the last year. “We’ve seen investors get off the sidelines and become active bidders. I think they saw that we’d come 30% off the high values and decided now’s the time to invest.”
Midpoint value: High-quality land with good drainage, square fields, and good loam soil is typically $8,500 to $10,000 an acre in southern Minnesota, Wingert says. “Last year, I worried that we would see a 10% to 15% downturn in farmland prices, but it hasn’t happened here.” Low-quality land with sandy or low-fertility soils can drop to $4,000, he says.
Who’s buying: About 65% are expansion-minded farmers, Wingert says. “In early 2017, it was more outside investors doing the buying. This year, it’s the neighbor farmers. Most farmers tucked some money away a few years ago. They’re now aggressive bidders.” Low interest rates are helping farmers make the decision to buy, he adds.
Opportunity: “It’s all in what you want to accomplish,” says Wingert. “For farmers, it’s usually about geography; a farm fits their location. They can square up a property or do something else to improve it, and it’s a good investment.”
- Read more: Farmland Values Hold Strong
George Clift, ALC
Area: Texas Panhandle and surrounding states
Today’s market: Clift calls it firm. “In the last six months, I’ve seen renewed buyer interest compared with the previous six months,” he says.
Midpoint value: In the Texas Panhandle, $4,000 an acre will buy irrigated corn ground that will grow 250-bushel-an-acre corn, but this can be deceiving, Clift says. “Here, it’s all about water rights and water-pumping capacity. Some irrigation wells will pump 200 gallons a minute; some will pump 1,000 gallons. It costs us more to grow corn here,” he says of the farmland price difference from the Midwest.
Who’s buying: Most are farmers, and they often are also in the livestock business. Usually, there’s some borrowed capital in the deal, Clift says. “We’ve seen an uptick in interest rates of about a half point, but that doesn’t seem to have impacted buyers.” Cotton is a cropping alternative there, he adds, and it is propping up some farm cash flows and farmland values. “We have a positive corn basis by 25¢ to 30¢ here due to our feedlots. We can make $4-a-bushel corn work,” he says.
Opportunity: “My opportunity would be to buy a corn farm here with an 800-gallon-per-minute or more water well,” says Clift. “There aren’t many of them for sale, but we have sold a few like that in the last few months. You’d also have cotton as an option crop, with two new gins coming to the region.”
Kyle Hansen, ALC
Area: Iowa and central Corn Belt
Today’s market: “I’d have to say our market in Iowa is stable with localized volatility,” says Hansen. “We’ll have a strong sale in one area, and a similar property not far away won’t sell as well. It is dependent on the strength of buyers in each area.”
Midpoint value: The most recent Iowa Chapter of Realtors Land Institute survey puts the average value for high-quality land across Iowa at over $9,300 an acre, with the northwest part of the state the highest at just under $11,000 average. Medium-quality ground averages near $7,000 across Iowa.
“When commodity prices fell a few years ago, land prices fell initially, but then they stabilized,” says Hansen. Maybe, he speculates, it’s because 82% of farmland in Iowa is debt-free. Purchases are not necessarily based on the revenue the land can generate. “Farmland prices seem to have disconnected from commodity prices,” says Hansen.
Who’s buying: About 75% to 80% of sales are to current farmers and the rest are investors, both individuals and groups.
Opportunity: “If you want a better rate of return, you might look to southern Iowa, where land tends to sell lower but you can still get good yields,” says Hansen. “If you want land that is likely to appreciate the most over the next 10 years, I’d look to central and northern Iowa.”
High-Quality Iowa Cropland Values
Data is from Iowa Realtors Land Institute surveys. Analysis by Hertz Appraisal Services.
Area: Florida and Southeast
Today’s market: The farmland market here is more difficult to quantify, says Bruere, who is based in Iowa but has done several land sales in Florida. “You’ve got the beaches and development going on,” he says, “and that can complicate the farmland market compared with other areas.” Yet, he sees good potential in farmland throughout the Southeast. “I like the variety of crops – vegetables, livestock, and even corn – that are possibilities,” he says.
Midpoint value: Agricultural land is typically in the $4,000- to $6,000-per-acre range in Florida and surrounding Southeast states, says Bruere.
Who’s buying: In many cases it’s farmers who want to expand, along with institutional investors. There are also more land speculators in Florida who are looking for short-term appreciation, Bruere says. One major factor in Florida farmland is that there’s a plant disease called citrus greening that devastates citrus groves. That land is being converted to vegetables or even corn for livestock and poultry.
Opportunity: “As I’ve broadened my own view of the farmland market across the country, my perspective has changed,” Bruere says. “I tend to see farmland now not so much for the value per acre, but what can be done with it. What can it produce? In Florida, the cropping possibilities are nearly endless; dairies and other livestock businesses are expanding. It’s a very intriguing market.”
Stan Lierz, ALC
Today’s market: Across the state, good-quality land is holding steady at good prices, Lierz says, while lower quality land values are definitely softer and more variable.
Midpoint value: High-quality pivot-irrigated land in eastern Nebraska averages over $8,500 an acre, while in the western panhandle region, it averages about $3,000. To understand that difference, you have to know about the soils and the elevation in the west (higher elevation gives more weather extremes), and you especially have to consider water availability and pumping costs. Diesel pumping expenses can be up to $100 an acre.
Who’s buying: Mostly, says Lierz, it’s strongly business-minded farmers who have cash in reserve. There are also investors who may want land for recreational purposes, but they often want lower-quality farmland. There is a nemesis of Nebraska farmers, Lierz says: real estate taxes. They’re based on land values using a three-year moving average, rather than annual profitability. Some buyers back off when they see taxes as high as $100 an acre.
Opportunity: Lierz sees opportunity today for farmland investors who stay business-focused and add on to an existing farm. Some farmers have sold one farm to an investor on a sale-lease back arrangement, and they used the cash generated to buy a nearby farm they want.
Area: Oregon, Washington, Idaho, Montana
Today’s market: Values are still increasing across this region, says Woiblet. It’s a very diverse farming region with over 100 crops grown – from orchards to dryland wheat. “It’s very much a seller’s market when it comes to farmland,” he says.
Midpoint value: Dryland wheat ground in the area of eastern Washington known as the Palouse is about $2,000 an acre. That land typically grows 80- to 100-bushel-per-acre wheat.
Who’s buying: There are some farmers who wish to expand, but mostly it’s the institutional investors. They want a 3% to 6% return, and they can get it on many land deals in this area, says Woiblet.
“Maybe the good news for farmers is that these investors don’t want to farm the land. They want to own it and show a good ROI. They work with area farmers to grow the crops.”
Opportunity: Woiblet thinks there’s opportunity for an expansion-minded farmer to buy an underperforming property and use technology to take it to a new level of productivity. This investor-driven market might present farmers an opportunity to sell land with a lease-back agreement, adding liquidity to an operation, he says.
Average U.S. Farm Real Estate Values, Nominal and Real (Inflation Adjusted), 1967-2017
Note: Farm real estate includes land and buildings. Data reflect values as of June 1 of each year. The annual GDP implicit price deflator is used to convert nominal values to 2009 U.S. dollars (Department of Commerce, Bureau of Economic Analysis). For 2017, the average of the first and second quarter price deflators is used. Data exclude Alaska and Hawaii. Chart source: USDA, Economic Research Service using data from USDA, National Agricultural Statistics Service.
Jeramy Stephens, ALC
Area: Arkansas, Mississippi, Louisiana
Today’s market: Farmland is tightly held in this Mississippi Delta region, explains Stephens. “There aren’t enough sales right now to give a good feel for the market,” he says. “A few larger tracts – 1,000 acres and up – of improved land are sought by investor groups. That market hasn’t really missed a beat from a few years ago.”
Midpoint value: The best farms – large tracts, leveled, well-drained, irrigated – typically sell for up to $6,000 an acre, says Stephens. Lesser farmland that needs more attention can be $3,000 to $4,000 an acre.
Who’s buying: It’s the investors. Some are foreign, some domestic, and some are a combination. They want to diversify their investments and get ROI of 4% to 5%. “Five is the magic number, but it’s hard to find it today,” says Stephens. Cropping choices are rice, cotton, corn, and soybeans.
Opportunity: For farmers, the investor frenzy isn’t necessarily a bad thing, Stephens thinks. “They need renters, and that may be a better deal for expansion-minded farmers than ownership,” he says. If you want to buy, he suggests looking for a tract of unimproved land that needs leveling, irrigation, fence clearing, or something else. “If you find that farm, you’d better be ready to pull the trigger pretty quickly,” Stephens says.
Written by Gene Johnston and Mike McGinnis