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Four Land Trends Worth Watching
Since we launched the Successful Land Sale column in March, we've highlighted the selling prices of more than 50 Midwest land sales and talked to dozens of folks in firms specializing in farm real estate. This is an interesting time to talk agricultural real estate because we're starting to see the ripple effects of lower commodity prices. Here are four trends we're noticing based on conversations with our real estate friends.
1. Ag Land Values are Decreasing . . .
It shouldn't be a surprise that, on the whole, ag land values are trending lower. Whether it's in Indiana, South Dakota, or Kansas, prices paid for land in general is less now than a year ago.
"It's tougher," admits Eric Mueller, agent at Farmers National Company based on Omaha. "Overall farmland prices are down 2% in Nebraska and 8% in Iowa. We see that they are down 5% to 10% from the highs we saw a year ago."
In a company-wide survey of its agents released in June, Farmers National reports decreased reduced land values in four of its major corn-producing states from 2014 to 2015:
- Illinois – $12,500/acre (2014) to $11,600 (2015)
- Indiana – $10,000/acre (2014) to $9,200 (2015)
- Iowa – $12,250 (2014) to $11,000 (2015)
- Nebraska – $12,000 (2014) to $10,500 (2015)
Values in some other Midwest states, meanwhile, are stable. Arkansas and Oklahoma land values are the same ($5,000 and $3,000 per acre, respectively). And in Missouri, the 2015 land value is actually $200 per acre higher in 2015 than last year ($6,700 from $6,500).
Mueller says this current pattern is similar to the scenario in 2009, which was preceded by a steady increase in land values, followed by a little dip. There are two major factors at play: commodity prices and interest rates. "If either of those change, you'll see land values affected," he says. "Right now, they serve as a sort of checks and balances. Commodity prices have dipped, but interest rates are still favorable.
2. . . . Yet Quality Land Retains its Value
While land values in general are falling a bit, high-quality farmland values have held stronger than those of lesser quality land, particularly in competitive locations.
Matt Adams, broker at Peoples Company in Des Moines, says that while average ground has leveled off, high-quality tillable acreage has held its value. "There is still some optimism out there," he says.
Michael Sullivan, auctioneer at Sullivan Auctioneers, LLC in Hamilton, Illinois, references a sale of Adams County, Illinois, land that sold in May: 40 acres of top-quality land in that sale brought $14,500 per acre. "This area has been a hot spot in this state, and there was a lot of interest in that tract," Sullivan says. "It brought about what we thought it would bring."
The lesson? Excellent land in a good location continues to bring top dollar.
3. Fewer Auctions Drive Demand
In years past, auction calendars were full of farmland auction dates throughout the growing season. In 2015, the number of auctions is down, says Chris Smith, associate at Hertz Ag Real Estate, based in Nevada, Iowa.
"Things are quiet. There is just not as much for sale," Smith says. "That may be holding values up."
Adds Jon Hjelm, owner of Spencer, Iowa-based The Acre Company: "The number of auctions is way down. There just aren't a lot of folks wanting to sell land right now."
There is a caveat. "Some of our older farmers are wanting to exit the business," Hjelm says. "They have made some good money the last few years and are wanting to cash in."
4. Bidders are Hesitating
Buying land is a high-stakes game, and just like any such activity, the participants have "tells." Mueller says a "tell" he notices is more time between active bids.
"Bidders are thinking a lot more between bids. Land is still selling, but guys are thinking about whether they really want to bid that next bid," he explains.
In times when potential land buyers are flush with cash, there's not a lot of thought between bids, Hjelm adds. Rapid bidding serves as a psychological advantage to the high bidder because it lends an air of confidence that he or she won't be outbid.
"There's a lot greater advantage to aggressive bidding than slow bidding," Hjelm says. "Slower bidding keeps the competition in the game, so to speak."