Several factors will come into play in 2017 that will determine the direction of land values.
Randy Dickhut, senior vice president of real estate operations for Farmers National Company, said that in the past three years, agricultural landowners in many regions across the country have seen a decline in profits, which also pushed land values lower.
“This winter, questions abound as to the direction of commodity prices, interest rates, inflation, challenges in the world economy, weather and U.S. tax law,” Dickhut said. “Buyers of ag land are asking if it is an opportune time to make a purchase of a farm or ranch, while sellers are asking if the market dynamics are indicating that it is good time to sell land. Depending on location, quality of land and other factors, our agents report seeing regions and local areas where land prices are stable to somewhat strengthening post-2016 harvest. Then there are other areas where land values have continued to decline.”
A key factor impacting land prices will be interest rates, Dickhut said. Grain and livestock prices affecting farm and ranch income also will influence land values.
“Foreign trade policy and its effect on agriculture will be closely watched over the next few months. Potential changes in tax laws could affect estate taxation and capital gains rules that in turn influence buying and selling decisions,” Dickhut said.
REGIONAL LAND VALUE REPORTS
Michigan, Ohio, Indiana, Illinois, Missouri, Kentucky, Tennessee, Arkansas, Mississippi
Top quality land values in this region have held steady, while medium quality land has trended downward, said Roger Hayworth, ALC, area sales manager for Farmers National Company in Lafayette, Ind. Low quality land, however, has been struggling in the marketplace with an average 10 percent decline in value.
In fact, most states in the region are seeing high quality land values hold fairly steady. During 2016, more private transactions occurred, but approximately 60 percent of transactions still were through auctions.
“If the property being offered lends to landowner reality, more than likely an auction will still be our best opportunity, especially for a high quality farm in a buyer’s area,” Hayworth said.
More than 95 percent of auctions resulted in sales either the day of or during the week of the auction. Hayworth said he’s seeing older landowners, estates and trusts fueling land sales, while buyers routinely are local landowners.
“As we move into 2017, the eastern region has brought an interesting angle compared to other parts of our marketing and selling area, which is a limited supply overall for most of 2016, while there was an influx of offerings and auctions in the final quarter that sparked solid sales, as higher quality land was still sought after by most buyers,” he said. “As we look into the near future, there seems to only be a sprinkling of activity moving into 2017 at this time. I believe with interest rates beginning to increase, the political movement completed and commodities fluctuating at lower levels, cropland values will be remaining stable to slightly trending lower during 2017.”
Land values in these two states haven’t changed much from mid-year 2016, reports Brock Thurman, AFM, vice president and area sales manager based out of Kiowa, Kan.
“Top quality land is still holding the same values if in the right location,” he said.
Medium quality land has seen a slight decline of five percent, Thurman said, while poor quality land has been difficult to sell.
“It could be down 50 percent from the top when it’s in poor condition and not in a good location. Location is key,” he said.
Thurman said he doesn’t anticipate significant changes in land values for the first half of 2017 and possibly beyond.
“High quality land will remain stable most likely due to investor money coming back into the equation,” he said. “Medium quality land ought to remain steady for the same reason. Low quality land will remain soft.”
Auctions remain the best method for moving medium- to high-quality land, Thurman said.
“We are using private and phone auctions on some tracts and it appears to be working well,” he said.
Some privately sold land has been sitting on the market for extended periods of time, because it was priced too high, Thurman said. So far, there have been only a few tracts that didn’t sell.
“Conversely, approximately 95 percent of public land auctions close the day of the auction or the week of the auction,” he said.
The most active sellers to date have been absentee owners who were aiming for high value peaks, but now simply want to sell before any perceived crash, Thurman said.
“We are seeing a new wave of interest from investors,” Thurman said. “Farmers are still buying the ‘right’ farm if it is available, something next door or a good addition to a current operation. Investors are looking at better values than the past three or four years.”
The number of ranches for sale in the state is a bit lower than it was six months to a year ago, but there is a steady stream of east Texas timber properties on the market, said Dan Hatfield, ALC, Texas broker, with Farmers National Company in Fort Worth, Texas.
Values for farm and ranch land have remained steady, though. Investors and estate sales are generating the most properties for sale on the market, but interest in buying ranches has been down a bit.
“Interest in timber properties has been good. Investors are the biggest buyers of timberland,” Hatfieldsaid. “Local farmers and ranchers, along with investors, are the biggest buyers of non-timber land.”
The second half of 2016 saw a jump in land auctions in the state of Iowa with a $34.859 million greater volume in the second half of the year and 3,763 more acres sold, said Sam Kain, ALC, GRI, ABRM, national sales manager for Farmers National Company based out of West Des Moines, Iowa. Auctions are the most successful approach to selling land in Iowa, with 97 percent of auctions resulting in a sale the day of the event.
Top quality land remains stable with a possible five percent decrease. Medium quality land is experiencinga five percent decrease and low quality land is seeing a 10 percent decrease in value. Pasture ground remains stable. Kain said he is seeing some land sales resulting from farmers experiencing financial pressures. Approximately 85 percent of buyers are local farmers and 15 percent are investors.
“The land market has been stronger since harvest was completed, which I attribute to above average yields,” Kain said. “For 2017, a lot will depend upon how much land comes on the market. Current commodity prices indicate land values should be trending downward, but if we continue to see so few farms come on the market, prices will stay steady.”
Land values for the first half of 2017 in Nebraska likely will remain relatively flat unless there is an uptick in grain and livestock commodity prices, said JD Maxson, assistantarea sales manager for Farmers National Company in North Platte, Neb. Overall, the land market has softened due to weak grain and livestock commodity markets. But, Maxson anticipates high quality land in sought-after locations to continue to be in demand in the first half of the year.
“A farm with Class I and II soils, good access, water and a level to gently rolling topography has and will continue to get the attention of local neighboring farms and investors,” Maxson said. “Typically, this type of farm offers high yields and excellent productivity, which translates to bottom line profits and above average return-on-investment. In comparison, an average to medium quality farm with any tract needing improvements such as gravity irrigation to pivot, which is a combination farm with Class III and above soils and may need cedar tree removal, is being discounted by as much as 25 to 30 percent.”
Maxson also said inflation could be on the horizon with the recent one-fourth of a percent hike in interest rates.
“However, land is a hard asset and can be leveraged against inflation versus other paper investments,” he said.
Still, since August 2016, top quality land in Nebraska continues to hold its value, while medium and low quality land is trending lower. Hard grass and meadow acres, as well as soft grazing acres, also are trending lower.
High quality farms are selling best through the auction process and sell within days if priced for the market, while medium and low quality farms are moving better with private treaties, but sit on the marketplace for longer periods of time. Almost all auctions have been successful in this state from June 2016 forward.
Unfortunately, Maxson has seen a few forced sales due to farmers’ financial constraints.
“However, lenders have been meeting with the producers after harvest. We certainly could see an 80-acre farm or short-quarter come on the market to generate operating capital for 2017,” he said.
Active sellers include absentee land owners, farmers/owner-operators and trusts. In the last few months, buyers have been investors.
“1031 money has had a huge impact in the last 90 days,” Maxson said. “High quality farms are holding value, while medium and low quality farms with issues like access, soil and water, along with a low percentage of tillable acres or land that needs improvements, are taking a hit of 25 to 35 percent.”
North Dakota, South Dakota, Minnesota
Sales volumes and the number of units sold in the Northern Plains region have held stable in the past six months, said Brian Mohr, area sales manager for Farmers National Company in Garretson, S.D.
“With the biggest drops behind us, I look for only a five to 10 percent decline in land values in the Northern Plains this year,” he said.
Medium and poor quality ground is down again this year by approximately five percent. Top quality land is experiencing a bigger drop this year, as much as 20 percent at recently held auctions.
In North Dakota and Minnesota, private listings and sealed bid auctions are working best, while public auctions are most successful in South Dakota. Most private listings sit on the market no more than three months, though and upwards of 90 percent of all auctions result in a transaction, Mohr said. Half of all auctions sell the day of, with the remainder coming to fruition that same week.
“All of the good land sells,” he said.
The most active sellers in this region are retiring farmers and family trusts. In turn, the majority of buyers are farmers looking to expand their operations.
Land values for top quality and medium quality land have remained steady in the past six months, helping fuel the market in this region. Flo Sayre, ALC-A, Farmers National Company real estate broker for the state of Washington, said sales interest remains strong and volume is equal to slightly better than it was six to 12 months ago.
Private listings are working best in these two states with property being listed anywhere from just 10 to 180 days, depending upon the type of land. Sellers include farm operators, estate sales and investors.
“Investors are important in the land market in Washington and Idaho,” Sayre said.