The coronavirus (COVID-19) pandemic is causing market volatility across the globe. How will that trickle down to the farmland markets? Will the uncertainty cause sellers to forgo sales? Or, will sellers opt to offer land to the market to improve their financial standing?
To find clues for what lies ahead, R.D. Schrader, president of Schrader Real Estate and Auction Company, suggests looking back first. Ahead of the COVID-19 outbreak in the U.S., he says farmland values were showing strength.
“It is very location dependent,” he says. “But we had some examples of the strongest competition we have seen at auction in the last five years.”
For example, Schrader points to two recent sales:
- Nov. 25, 2019, sale in Union County, Ind.: The 805 acres sold in 10 tracts, with three tracts including pasture or older sets of farm buildings. The rest of the tracks were all tillable and the price ranged on those from $8,000 to $9,000 per acre. The sale saw 71 registered bidders.
- Oct. 30, 2019, sale in Noble County, Ohio: This sale offered one of the largest timberland offerings sold at auction in Ohio – 12,200 acres. In total, the land sold for $12 million. Around 350 people attended the auction and nearly 200 registered bidders.
“These are two auctions that show a lot of competition and folks really wanting to put their money in land,” Schrader says.
Why does interest stay so high in farmland? Schrader says factors include tight land supplies, favorable interest rates, relatively high farmer incomes and strong interest for 1031 exchanges.
Combine those trends with COVID-19, and you have farmland poised to be a highly sought-after, safe haven investment option.
“In the midst of the many uncertainties and tragedies due to the spreading COVID-19, the security offered by land ownership again shines through,” says Mike Walsten, contributing editor to LandOwner.
Farmland offers security and a tangible asset.
“The quick evaporation of net worth in the stock market meltdown makes the basically stable farmland market look very attractive,” Walsten says. “Especially when you consider you know where your wealth lies when you hold title to farm ground. You can see it. You can walk on it. You can harvest food from it. You can live on it. These are all comforting in times of trouble.”
Over the years, farmland has been a strong diversification tool for investing. Schrader says in the last two recessions, farmland steadily outperformed the stock market:
- During the dot-com bubble of 2000-2002, the S&P 500 dropped 44%. Meanwhile, row crop farmland returns increased by 18%
- During the financial crisis of 2007-2009, the S&P 500 dropped 46%. Meanwhile, row crop farmland returns increased by 26%
“While there are times the S&P 500 runs ahead, it’s time likes this when farmland will look really attractive,” Schrader says.
Looking forward, Schrader says he is watching farmer incomes—any rebounds from the current suppressed levels or further deterioration. He thinks the sale of land for development purposes will slow down, and there will likely be less 1031-exchange money going forward.
The spring is always a slower time for farmland sales. Schrader says that limited supply of land being sold at auction could continue, due to COVID-19.
“With everything going on in the marketplace, a lot of sellers are less definitive about what to do,” he says.