Land sales rush could spell short supply, higher values in 2013
Economic uncertainty had some non-operating farmland owners rushing to sell, which was evident in the last three months of the year, according to Farmers National Company, the largest farmland and ranchland real estate company in the country.
Overall for 2012, Farmers National Company reports that sales activity was up 40 percent over 2011.
"We anticipated another record year in 2012, but what we've seen has exceeded our expectations," said Derrick Volchoff, ALC, vice president of real estate operations at Farmers National Company.
Projected changes in tax laws prompted many landowners who were planning to sell in the next two years to act before new rules take effect. This high level of activity is likely to lead to a short supply of available land as we enter 2013, according to Volchoff, which could drive values even higher.
"Pure economics should dictate that values rise if the supply of available land tightens," said Volchoff.
The fact that values have stayed strong over the past few years has prompted landowners to sell while the market remains positive. Several market forces such as economic uncertainty in Europe and China, as well as the widespread drought, have not negatively impacted land values to date.
Buyers in the current market are farmers looking to expand their operations, said Volchoff. Non-operating land owners are driving activity, as many sellers are looking to sell inherited or transferred land. High profitability from strong commodity prices in recent years has put many farmers in a strong cash position, reducing purchase risk as debt ratios have been held down. Very few investors are looking to sell at this point.
"Buyers feel they will still get returns on land well into 2013 as projections for continued profitability are strong," said Volchoff. "Farm operators feel very comfortable in their situations. They have significant cash and are investing it in their operations buying land and equipment."
The future of the market, while unforeseen, is not risky, according to Volchoff. "The farmland market has not been highly leveraged, as residential housing markets were when prices skyrocketed. This is not a speculative market and we do not foresee any type of abrupt downturn. People still see land as a safe, tangible investment and are willing to keep their money there over the long term."