Farmland average values up 20 percent
By Larry Dreiling
An accelerated farmland sell-off at the end of 2012 has led to continued low supplies of premium quality property, according to a report by the Omaha, Neb.-based Farmers National Co., the largest U.S. farmland and ranchland real estate company.
Last year’s rush, prompted by economic uncertainty and tax law changes, continues to have an impact into 2013. High-quality land is still in demand, and buyers are competing for top acres in short supply.
Competition for land has kept values strong, averaging 20 percent higher values over comparable land in 2012. Much of the continued rise is due to auction activity driving sales prices as purchasers vie for parcels of land. Mid- to high-quality properties are seeing rises in value, while lower quality land values are steady.
“Values are still going up, but the pace has slowed overall,” said Derrick Volchoff, ALC, vice president of real estate operations at Farmers National Company. “Many transactions for high-quality land are being sold via auction, which drives prices through competitive situations.”
Auctions today have turned very competitive with bidding wars becoming the norm for high-quality land sales. Areas of the country that normally do not run auctions, such as the Delta region, are now seeing them on a regular basis, according to Volchoff.
“Despite an overall moderation in the number of sales transactions since the end of last year, there has been noticeable growth in the size of parcels being sold per purchase,” Volchoff said.
Moving into the third quarter of 2013, the FNC report says it expects the number of transactions being closed to increase, based on activity seen in the past 60 days.
“During the first two quarters of 2013, there has been a hiccup in activity based on the surge at 2012 year-end,” Volchoff said. “However, the trend seems to be shifting upward again and transaction numbers for the balance of the year should remain relatively steady.”
Investors are sticking with land as a safe, long-term investment while farmers are putting cash from past yearly profits back into operations. Built up cash reserves for farmers are prompting farm operators to buy premium land when it becomes available to add to their inventory and to accommodate the return of younger family members to farms.
For both groups, economic uncertainty is still driving purchase decisions. Farmers are looking for premium land on which to expand, while investors may purchase properties based on price and projected return on investments.
“Even with recent drops in crop size for farmers, profits are still at a level higher than in 2010,” Volchoff said. “Farm debt is still low in relative historical terms.”
According to Volchoff, several issues in the U.S., such as health care and interest rates are likely to impact economic trends and thus land inventory levels and sales activity once they are resolved.
The direction of market and political issues will likely shape the rest of 2013. As the housing market improves, developers will likely begin to buy land for development. This could trigger more 1031 tax deferred exchanges pushing new money into the market.
The land market throughout the High Plains of Kansas, Oklahoma and the Texas Panhandle continues a strong drive into 2013 despite persistent dry weather and springtime freezes that have damaged growing wheat across a wide area. Land values throughout Kansas, Oklahoma and Texas do not show any down turn despite weather challenges across the region.
One major change in this region’s market is the impact of an inventory shortage that is a direct result of a strong sell-off of land late in 2012.
A continued low number of listings are coming available on the market into the next quarter. A projected large corn crop could impact values later in the year, as well.
Sales prices in Kansas of top-quality land range from $3,800 to $6,000 per acre depending on location. Prices for irrigated high-quality cropland in the Texas Panhandle are between $3,000 and $4,000 per acre.
Demand for high-quality farmland continues to be very strong in Iowa, Missouri, Minnesota and South Dakota. While demand from both investors and farmer operators is high, farmers are the ones paying top prices and targeting premium pieces of land.
Continued low supplies of land and low interest rates have kept the market strong. Without low rates, current commodity prices do not justify current land values. Any jump in rates could lead to a sales slowdown, but its strength as an investment is seen as keeping activity healthy.
In Iowa, top-quality land is selling at more than $12,500 per acre, Minnesota values are reaching $9,500 per acre, and values in eastern South Dakota have reached $8,000 plus in many areas.
After experiencing double-digit annual increases of up to 25 percent to 30 percent in land values over the past six years, moderate to steady growth for land prices is seen as they plateau throughout mid-year 2013.
While demand for high-quality cropland and commodity prices still remain the motivating factors driving values; for the most part, land prices have stabilized throughout the first quarter of 2013.
Recent news of planned ethanol plants closing in the area will likely impact commodity prices, as demand declines for ethanol-based grains. Corn planting was delayed due to late spring snowstorms and below average ground temperatures, leaving a somewhat negative impact on yields and production.
Prices in these regions are ranging from $4,000 to $12,000 per acre for high-quality tillable acres, with location, soils and topography dictating price.
Larry Dreiling can be reached by phone at 785-628-1117, or by email at email@example.com.