Demand for farmland is forcing higher prices
Interest in buying agricultural land has grown since a coronavirus pandemic-induced slowdown blanketed the land market last spring. Farmers are feeling more financially secure as strong commodity prices arrived on top of large government payments in 2020. This is propelling farmers to bid more aggressively for additional land than has been the case during the past six years.
“Farmland sales prices are up 5 to 15 percent in the past six months with most of the increase coming since the first of the year,” said Randy Dickhut, senior vice president of real estate operations at Farmers National Company, in a press release distributed by the company. “Competitive bidding among interested buyers is really pushing land prices right now.”
Individual investors, both first-time, and experienced buyers, are stepping into the land market as they search for a safe, long-term real estate investment in a low interest rate environment. Investor buyers seldom outbid farmer-buyers for a good farm unless they have 1031 tax-deferred exchange funds to spend in a short time period.
The increase in ag land prices is happening in most areas of the Grain Belt and with most types of land.
“At Farmers National Company auctions, we are seeing competitive bidding push prices for good cropland to levels approaching 2014 values,” Dickhut said. “Average to lower quality farms are experiencing stronger sales prices, too, while pastureland increases are more modest.”
Currently, the demand for good farmland is outstripping the supply of farms for sale. During the previous few years, the number of farms for sale has been lower but there remained enough demand in the farmland market to balance the lower supply resulting in steady land prices. The strong demand to own farmland is one of the main factors pushing prices higher.
Higher land values will bring more sellers into the market as estates, trusts, recent inheritors and family groups will decide to sell the farm or ranch and capture the higher prices. Also, uncertainty surrounding future tax policies will trigger a sale sooner than later for some.
Landowners who are thinking of selling their farm are now factoring in both the higher proceeds they would get from the sale and what potential tax obligations might be due.
The land market will be balancing increased demand for good cropland against what might be an increasing supply of farms for sale.
“Our agents are fielding an increased number of calls from landowners who want to sell because of the aforementioned reasons. Our pipeline of sales activity for summer and fall is filling up.” Dickhut said.
Farmers National Company’s land sales activity has been brisk. The dollar volume of land sold is up 60 percent over last year and up 67 percent over the average of the past three years. The number of acres sold in this time period is up 64 percent from last year.
In a rising land market, it becomes more difficult to predict what a farm will actually sell for on any given day especially when there is demand from both farmers and investors, Dickhut said.
“The best way to sell cropland in the current market is to take it to auction or some form of competitive bidding that brings together the potential buyers and lets them push the price,” he said.