Despite entering a fourth year of projected lower farm incomes, land values are holding their own, especially in Michigan, according to the latest report from Farmers National Company (FNC), a leading agricultural landowner services company.
The company, which has sold more than 3,800 farms and more than $2.44 billion of real estate during the last five years, also manages more than 5,000 farms and ranches in 28 states comprising more than 2 million acres. They report a 21 percent increase in sales volume thus far this year.
The number one question they receive the question landowners, operators and lenders: Where are land values heading from here? That depends on how severe the financial stress becomes later this year, says Randy Dickhut, senior vice president of real estate operations at FNC.
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“The trend in today’s land market is hard to discern as some sales bring a better than anticipated price, while others may show a decline in value from previous sales,” Dickhut said. “Agricultural land values in most areas can be expected to continue to gradually decline over the next several years if commodity prices and the underlying farm incomes remain at current low levels.”
Dickhut advises that sellers, buyers and lenders alike, should be aware of Interest rate increases, potential tax law changes and world economic uncertainties. The biggest unknown? The potential increase in the number of properties for sale caused by financial stress in the agriculture economy.
REGIONAL LAND VALUE REPORTS:
Illinois, Indiana, Ohio, Michigan, Missouri, Kentucky, Tennessee, Arkansas, Mississippi
Agricultural land values in the eastern Corn Belt and Delta have been mostly steady since last year, with Illinois, Indiana, Ohio, Michigan and Missouri seeing only a slight decline.
“Prices overall have remained steady; leveling off compared to the downward trending from the fall of 2015,” said Roger Hayworth, ALC, area sales manager for Farmers National Company. “Higher quality land has been unchanged with a slight dip for mid- to lower-quality farmland.”
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The volume of land sales in the region has held steady, but also has been slower than in the past few years. Most sellers are estates, trusts or inheritors and most buyers are local farmers. Investors are interested in purchasing land, but are cautious as they examine current land economics. There have been very few financial stress sales in the market to date in the region.
“We believe the stability of land prices in the area will continue through 2017 unless we see some type of market-moving event from crop prices or outside economic influences such as a change in tax policies,” Hayworth said. “With a slower pace of land sales and cautious buyers, our land market is in equilibrium across the region.”
Land auctions lead the way in Iowa for Farmers National Company as it has seen a 30 percent growth in sales in the last year.
“Auction sales were 78 percent of Farmer National Company’s transactions in Iowa for the first six months of our fiscal year. Despite a more cautious land market, 97 percent of our auctions were successful and the land sold. That is a testament to the local agent who knows the buyers and sellers in their market,” said Sam Kain, ALC, GRI, ABRM, national sales manager for Farmers National Company based in West Des Moines, Iowa.
Good quality land in Iowa has been steady or experienced a slight decline in value in the past six months. Average quality land continues to see a slow decline in value while pasture land has experienced some strengthening. Estates remain the primary sellers of land as the inherited land is sold and the proceeds divided among the inheritors. Farmers continue to comprise the majority of land buyers with interest by investors coming back into play in the market.
“Overall, land values have stayed fairly stable due to the limited amount of land on the market over the past several years,” Kain said. “Recent commodity prices indicate there is still room for a downward trend in land values. If we start to see more land available on the market, we may see values decrease more rapidly.”