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Farmers National Company Sees Increase in Acres Sold as Land Market Remains on Edge
The land market will always be one of the hottest topics in agriculture. As many speculate whether land values will establish a bottom or if prices will be pressured down, the market is on edge.
Although farm incomes have been depressed, ag land values have been surprisingly resilient over the past two years. Historically low interest rates, low supply of land for sale, and adequate buying capital have helped land values demonstrate an underlying base of strength.
“Despite the slower land market and cautious buyers, Farmers National Company is experiencing a strong 29% increase in the number of acres sold by the company compared with last year and 22% over two years ago,” says Randy Dickhut, senior vice president of real estate operations for Farmers National Company.
While the company is seeing an increase in acres sold, the biggest concern in the ag land market is the financial health of farmers.
Working capital has declined almost 70% since 2012 and inflation-adjusted farm debt is at the highest level since the 1980s. The news for 2019 isn’t any better as overall net farm income is projected to be down 50% from 2013, Dickhut says.
Low commodity prices coupled with rising costs have squeezed profits and working capital causing farmers to be more cautious when buying land. As the industry faces a sixth year of tight to nonexistent profit margins, farmers are looking for ways to free up capital.
“We are seeing an increase in the number of farmland sales by financially stressed producers due to multiple years of reduced income,” Dickhut says. “Some of these sales are done quietly and not exposed to the marketplace to get top dollar. Other sales are coming from producers who are proactively liquidating a land asset to improve their balance sheet and cash flow. Farmers National is now handling an increasing number of land sales and receiverships for lenders.”
Despite weakening on a number of fronts, Dickhut says overall, U.S. agriculture is in solid financial shape. For example, the debt-to-asset ratios may be worsening, but they are still below recent higher levels. While the number of farm and ranch bankruptcies is increasing, they are far below what was experienced in the 1980s. Land values that have held up better than expected have supported the growing level of financing required for some producers, he says.
Uncertainties Could Impact Sale, Price of Land
While agriculture and the land market are aware of a number of problems it faces, many unknowns – like grain and milk prices and unpredictable weather during the growing season – could have an impact on the sale and price of land. Trade issues also continue to have short-term effects on commodity prices and production costs. And as long as trade is disrupted, the potential for ongoing negative impact looms over agriculture. While interest rates look to be stable for the foreseeable future, Dickhut says world economic performance is more uncertain.
“As 2019 unfolds, the land market will remain on edge watching farm finances, weather, and trade issues. The outcome of these and other unknowns will guide which direction land values will move over the coming months. With the land market on edge, buyers and sellers of land need the most trusted advice available to navigate the uncertainties,” Dickhut says.
Regional Land Value Reports
The breakdown of states below outlines land values in various regions across the country.
Iowa and Wisconsin: Despite the overall slower land market, location and quality are key drivers of land prices in Iowa and Wisconsin.
“There have been some strong sales for high-quality farmland in Iowa and for recreational land in the right location for the buyer” says Sam Kain, area sales manager for Farmers National Company. “We are starting to see increasing signs of financial stress among farmers.”
This is particularly true in the Wisconsin dairy industry as farmers either retire or sell assets including land. In Iowa, the stress on farmers varies by area depending on crop yields the past several years. Farmers National is experiencing a growth in acres for sale in both states due to financial problems for farmers.
Buying interest for land has remained adequate for the amount on the market for sale, but the buyer profile has changed somewhat.
“The farmer buyer is being more cautious and more selective in the farms they bid on. The 1031 exchange buyers have been active and continue to support current land prices,” he says. “Investors are also active buyers depending on the type of land they are interested in.”
Farmers in these two states are also dealing with the current effects of trade issues and weather.
“If someone is thinking about selling their farmland or buying land as an investment, they need to know the local land market as each area is reacting somewhat differently, which could influence price expectations. Buyers and sellers need to be knowledgeable in today’s land market or they need to seek assistance,” Kain advises.
Arkansas, Illinois, Indiana, Michigan, Missouri, and Ohio: Even though the overall land market has slowed, location and quality are also key drivers of land prices throughout the eastern Corn Belt and Delta.
“Good-quality farmland normally sells well as will recreation properties in the right locations. But lower quality farmland saw a decline this past year,” says Roger Hayworth, area sales manager for Farmers National Company. “The overall agricultural real estate market has taken a sluggish turn when compared with a year ago. The uncertainty created by trade issues and projections of continuing lower farm incomes clouds the horizon for farmers and land buyers.”
Buying interest has remained steady for the amount of land on the market, but the buyer profile has changed. As is the case in Iowa and Wisconsin, the farm buyer in this area is also being cautious and more selective when it comes to land purchases.
In addition, Hayworth echoes Kain’s comments about the 1031 exchange buyers as well as investor interest in land.
Ag lenders are beginning to report that some of their borrowers are experiencing financial stress from multiple years of low commodity prices and farm incomes. Working capital is declining with the tighter margins putting pressure on loan repayment capacity.
Kansas, Nebraska, Oklahoma, and Texas: Land values in these southern Plains states are as varied as their terrain.
“Farmers National Company has had above-average sales activity in the region compared with last year,” says Paul Schadegg, area sales manager for Farmers National Company. “High-quality land has sold well whereas lower quality land saw a decline in demand and price. With the uncertainties in agriculture right now, people are reaching out for someone they can trust to sell their land or to help them buy a property. We are fielding an above-average number of calls from investors wanting to buy land. Our agents are also getting calls from people who are thinking about selling in the coming months.”
Farmers National is handling an increasing number of sales of timberland as well as buyers who want to invest in this long-term asset in East Texas, which is an important timber producing region. Since the pool of buyers is large enough to absorb whatever might come up for sale, Texas ranchland remains stable to strong.
Minnesota, North Dakota, and South Dakota: Although the overall land market has slowed in the northern Plains, key drivers of land prices are location and quality.
“Good-quality farmland normally sells well as will recreation properties in the right locations. But lower quality farmland saw a decline this past year,” says Brian Mohr, area sales manager for Farmers National Company. “We are starting to see increasing signs of financial stress among farmers approaching some of what we saw in the ’90s.”
The stress on farmers varies by area depending on crop yields the past several years. Working capital for most producers is declining with the tighter margins putting pressure on loan repayment capacity.