6 Drivers Keeping the Farmland Market Steady

Doug Hensley gives six drivers keeping the farmland market firm despite so much uncertainty in ag. ( Lindsey Benne )

Doug Hensley, president of real estate services with Hertz farm management, recently talked with Chip Flory on AgriTalk and gave an overall update on the farmland market. Hensley gives six drivers keeping the farmland market firm despite so much uncertainty in ag. 

1. Annual numbers are a better barometer than quarterly surveys. 

“I really look at the annual numbers maybe a little more closely,” Hensely says. “With the quarterly numbers, it’s a survey of people’s attitudes one sale to the next which can really influence things.”
He continues to say that looking from April 2018 to April 2019, the farmland market is overall flat. Although it’s higher for good farmland. 

2. Fewer farms are for sale. 

“I get people asking me all the time, ‘Doug, why isn't this land market responding with weaker values because things are so tight out here in the countryside?’” he says. “And I think part of it a big part of it comes down to the fact that there's just so few farms for sale.”

3.    When farms are up for sale, there are many qualified buyers. 

“Think of the home area wherever home is for you. And think of a good farm when it comes on the market. There are usually three, four, maybe a half a dozen different local farming families in every locale across the Midwest that can participate in chasing an 80 or a quarter section that comes up especially if it's a good one that people are interested in,” he says.  

He says in Iowa right now is close to eight out of every 10 farms are bought by a local farmer.

4.    Farmers are the primary buyers, but investors are helping prop up prices.
He notes even on surveys that show farmers are the final buyer, they may have been pushed to the winning bid by an investor. 

“When you have a half dozen healthy and wealthy farm families able to bid, that is only heightened when you add an investor,” Hensley says. 

5.    Commercial development is causing a multiplier effect. 

Hensley says depending on where you are in the Midwest, there's still a fair amount of economic development and growth that spurs a lot of activity for section 1031 of the Internal Revenue Code andtax deferred exchanges.

As one example he notes Apple Computer bought 2,100 contiguous acres west of Des Moines, and the company paid in excess of $40,000/acre. 

“For those who had land as part of that 2,100 contiguous acres, they are going further out into rural Iowa and buying more acres than they just sold. In some cases it’s a three for one trade or even a six for one trade,” he says. 

6.    Investors still eye farmland for a long-term win

Hensley says farmland maintains its reputation for holding value, and that the expectation of everyone is that in 30 years it’ll be worth more than it is today.

“We have a handful of people right now we’re working with that are saying they may take some winnings out of the stock market and diversify their portfolio with farmland,” he explains. “We have a client right now that's from Boston, and they are very heavily invested in paper – stocks, bonds and things like that. And they're saying, let's go find an 80 or quarter section in Central Illinois or Central Iowa. That will diversify what I own and will take a little bit of the risk from my portfolio off the table.”