Farmland market is facing opposing factors in coming months
A Nebraska farmland realtor says opposing factors will be pushing and pulling land values in the coming months to decide what’s next for the land market.
Before COVID-19, the market for good-quality cropland was strong due to low interest rates, a compromise in trade negotiations and high demand, says Randy Dickhut, senior vice president of real estate operations for Farmers National Company.
But after COVID-19 struck, a host of disruptions affected agriculture:
- Dairy producers saw an immediate drop in fluid milk consumption when schools closed.
- Livestock producers saw their prime marketing channel dry up overnight due to decreased demand for pork and beef; and the shutdown of meat processing facilities could be felt at the farmgate.
- Corn producers saw the bottom drop out of ethanol usage at the institution of stay-at-home rules.
Still, many farmland auctions proceeded, with social distancing procedures in place. Farmers National Company held several stay-in-your-pickup-in-the-parking-lot live auctions, bid sales, or online auctions. Sale outcomes varied by region and property. The land market became more cautious in the areas with dairy, livestock, and ethanol as these industries endured mounting bad news. In other areas, land sale prices were stable as demand for good-quality land was more than adequate for the amount that did come up for sale.
“Real estate sales activity at Farmers National Company was strong during the first seven months of its fiscal year despite an industry-wide slowdown. Sales volume was up 6% to 8% compared with each of the past three years. Sellers and buyers continue to actively call Farmers National Company agents as real estate business for the company continues during this uncertain period,” Dickhut says.
What is coming next for the land market?
Various factors that can impact land values are pulling in opposite directions. Positive influences include the continued low supply of good land for sale and historically low interest rates. For many, investing in ag land will be a safe haven for the current times, a long-term hedge or the means to invest in the sustainability of the food supply. The average land buyer who has resources may invest in recreational land for a place in the country. Farmers will remain buyers of land if they have the financial standing to do so.
Challenges that could put pressure on land values include the overriding potential for depressed farm incomes and the further decline of working capital for producers. Will lower farm incomes overcome the low-interest environment to put pressure on farmland values? Will farm finances be helped enough by the additional infusion of federal cash payments to producers to maintain financial stability? Will there be more land come onto the market due to financial pressures that could tip the supply and demand equation?
“It is too soon to accurately answer what’s next for the land market except that agricultural land will continue to be bought and sold. Land passing to the next generation is a constant that remains in play no matter what. Decisions made by inheritors of land, producers, lenders, legislators, and investors will come together over the coming months to provide the answer to what’s next for land values,” Dickhut says.