Strong farm incomes hold land values in check
Positive income results for farms, combined with a tight land supply, have buffered economists' previously projected downturn of farmland values, according to Farmers National Company, a leading farm and ranch real estate company.
Farmers National Company recorded strong real estate sales for the first half of 2014, down somewhat from record sales experienced in 2013. Aggressive marketing by Farmers National agents and good demand for land have propelled this year?s sales.
"The big story is that the land market is stable, despite projections that farm income and land values would drop," said Randy Dickhut, AFM, vice president of real estate operations of Farmers National Company. "The anticipated large drop in farmland values hasn't happened, as farm incomes were stronger than expected going into 2014. Original income projections of 20 percent below last year were not realized."
In late 2013, forecasters were pessimistic for the year ahead. However, Dickhut said economic trends and key market factors shifted in a way that paints a more positive picture for this year.
Experts predicted a softening in land values as grain prices started to decline. In fact, commodity price drops boosted worldwide demand for U.S. exports, resulting in higher grain prices than initially thought. Higher grain prices and better farm incomes actually stabilized land prices going into 2014.
"Market factors aligned to create an optimal situation for our industry," Dickhut said. "Due to this, we continue to see a strong land market. While there are no record-setting top values currently, land prices are not going down significantly."
While land values nationally are slightly down a few percent or stable, Dickhut said values overall remain historically strong. The northern plains area has experienced the most softening of land values due to weather conditions and lower commodity prices last year. Still, good quality farms sell well as demand continues from buyers. In contrast, the delta region has experienced land value increases of 13 percent due to good crop production.
Regionally, land prices remain fairly stable compared to the double-digit price increases seen in recent years. Prices per acre for high quality land range nationwide from $3,500 to as high as $12,500 per acre in parts of Indiana, Illinois, Iowa, and Nebraska. Values in the Upper Midwest remain strong overall with sales reaching $9,000 per acre in some locations.
As demand rises, prices for grass land continue to increase in places like Nebraska and Texas. Livestock producers are rebuilding depleted cattle herds, which puts pasture land at a premium. Reduced feed costs for livestock have helped boost income levels in this ag sector, allowing operators to acquire land "The 2014 outlook for farms remains positive," said Dickhut. "Farm owners continue to search for high quality land to expand their operations. I think economic forecasts overrated the demise of the U.S. land market. Things didn't fall apart, but instead held steady and strong. Profitability for operations helped to ultimately keep property values strong."
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