As 2014 came to a close, land values had stabilized from the double digit increases of the past few years, according to Farmers National Co., the nation’s leading farm and ranch real estate company. Location and quality of land continue to be main drivers of prices for a given tract of land.  The lower supply of land for sale and the continued demand for agricultural land is maintaining general stability of the land market.  

“While lower grade land has seen drops in value near 15 percent from recent highs, top quality crop and grazing land still bring solid prices as owner operators and investors seek to expand their operations with the most productive land,” said Randy Dickhut, AFM, vice president of Real Estate Operations of Farmers National Co.

According to Farmers National Co., the supply of land for sale is less than in the past few years as there is no tax policy change driving sales and landowners remain tight holders of the asset. “Land is viewed as a long term asset and owners consider agricultural land a stable investment in a changing world,” said Dickhut.

Demand for cropland and grazing land from owner operators remains good, but buyers are being more realistic in what they will pay given lower grain prices. Sellers are having to be realistic in evaluating the quality of their land and the expected selling price in order to have a successful sale.

Despite leveling or moderately decreasing land values overall, Farmers National Co. has seen strong prices paid for specific properties within the last 60 days based on local competition and the desire for quality. According to Dickhut, farmland seldom comes up for sale in many locations, therefore local producers are willing to pay top dollar to grow their operation and asset base. 

Recent value adjustments in the land market still leave land values at historically high levels in the longer-term view. Price softening is happening, but at different rates depending on the region, prices for major commodities in that region, and quality of the land. Profitability from record crop incomes supported by insurance coverage, has kept farm operations in the black and producers interested in adding land.

“Buyers are being more realistic when considering land purchases which has reduced the fervor of rapidly escalating prices seen at land auctions in recent years,” said Dickhut. “Owner operators continue to be the main purchasers of agricultural land comprising nearly 90% of buyers in many areas.”

Investors are showing up in the market to purchase land, but are also being realistic in the timing of their purchases and the long-term outlook for agricultural land.

Profitability in recent years has left many farm owners cash rich and opting for land purchases for personal and business investments. The tangibility of land and the ability to grow their operation makes land a preferred investment for the owner operator. Producers are being more realistic with their land purchases as they give more attention to the economics of the asset and seek increased financing.

Even with lower grain prices, record grain harvests will keep net farm income quite positive in 2015. This factor should keep the current market fairly stable for the time being.

“As we forecast further out into late 2015 and 2016, circumstances could shift,” said Dickhut. One of the factors that could impact values moving into 2015 is the potential for rising interest rates. If rates increase gradually, as predicted, market impact should be minimal in the short term.

Longer term, world demand for water, food, fuel and fiber will determine commodity prices, which will affect future land values. As long as the supply of land for sale remains low and demand continues to be present, land values will be supported, according to Dickhut.

Farmland investment is still a positive long-term opportunity for most producers and investors. Despite slight downward shifts, the land market remains stable and supports business expansion for farm operators looking to grow their businesses and investors wanting a long-term asset.

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