Overall average crop ground and grassland values have slipped from the highs of several years ago, but remain strong. As a result, demand for good land remains solid, but interest in lower quality crop ground and grassland is lower in most areas.
“The agricultural land market is in a time of equilibrium as the supply of land for sale is fairly in balance with the demand to buy land,” said Randy Dickhut, senior vice president of real estate operations for FNC. “The supply of ag land for sale is generally on the low side of normal as some landowners are deciding whether to sell now or keep their land. Demand to buy land has trended lower over the past few years as buyers are being more cautious.”
According to a survey of FNC agents, farmers and ranchers, land purchasers are not as aggressive when compared to recent years. Profits are down and lenders are being more careful in what they will lend on land purchases.
Furthermore, investor interest in farm and ranch land declined as land values moved higher during the last four to five years and the return on investment slipped. However, individual and fund investors are moving back into the land market as land prices soften.
Factors affecting land values, including interest rates, values of other investments and non-economic issues, can surface over the next few years to move the land market in either direction, Dickhut said.
Purdue survey
A recent survey of U.S. ag producers by the University of Purdue’s Center for Commercial Agriculture found that while more farmers expect a continued decline in land values, a majority still view farmland as a favorable investment.
Only 15 percent of those responding expect June 2017 farmland values to be up from June 2016, while 33 percent expect values to continue to decline.
When asked to evaluate farmland as an investment on a scale of 1 to 9 (1 being “extremely poor” and 9 being “extremely good”), 52 percent of respondents scored farmland favorably (a score greater than 5) and nearly one-quarter provided a neutral rating (a score equal to 5) for farmland as an investment.
Conversely, 23 percent of the farmers viewed farmland as a poor investment (a score below 5).
Regional land value reports
Changes in ag land values vary by region, but follow some common trends, according to FNC. Good land remains in stronger demand, and some private investors are again entering the picture.
Mideast, Midwest
Due to a swing in commodity prices, agricultural land markets have softened in the Midwest and Mideast, said Roger Hayworth, FNC area sales manager. Buyers with residual income from high-commodity price years remain interested, but are more cautious. There also has been an increase among investor groups adding acres. Location and quality remain major influencers on land values. There has been a decline in ag property listings.
Compared to June 2015, prices paid per acre for high-quality land in June 2016 averaged $100 less in Michigan, $200 less in Ohio, $500 less in Indiana and $600 less in Illinois.
Lower commodity prices pushed Iowa land values down $500 from a year earlier, said Sam Kain, based in West Des Moines, Iowa. Limited ag land supply, however, is limiting the decline, with strong demand for high-quality land and renewed investor interest.
It’s a different story in Nebraska, where high-quality land is selling for $1,500 less per acre compared to June 2015. Dryland cropland is showing the steepest decline.
“It’s a result of a weak commodity market, soft cash rents and continued stress on livestock producers’ bottom line profit,” said JD Maxson, FNC area sales manager in North Platte, Nebraska. As the demand for tillable cropland acres has dropped off, grazing pasture acres paralleled this downward trend as ranchers and livestock producers became more prudent and cautious, Maxson said.
Maxson noted that specific pockets of Nebraska farmland have seen land pricing steady to strong. For example, a March auction of 260 acres near Milford sold in three tracts for $10,500 to $10,700, proving high-quality land with improvements like tilling, center pivot irrigation, abundant water and good access to grain markets is still in demand.
Prices were $100 lower in Mississippi, but Missouri saw a slight uptick of $200 per acre, and Tennessee saw an increase of $150. Prices in Kentucky and Arkansas remained steady from last June.
“If commodity prices move slightly higher during the second half of 2016, expect land prices to remain stable with higher quality, maybe even clicking forward a little,” Hayworth said.
Kansas, Oklahoma, Texas
While still historically high, lower quality land is finding softer values across Kansas and Oklahoma, according to Brock Thurman, FNC vice president and area sales manager based out of Kiowa, Kansas. Farmers were the most active buyers in this region during the first half of 2016.
“High-quality land still pencils out an acceptable return, and it is desirable as a long-term holding, because of that higher yield potential. Lower quality or lower yielding land may not hold that potential,” Thurman said.
Texas ag land values were stable, although the fallout from the oil crash remains to be felt, said Dan Hatfield, FNC area sales manager in Comfort, Texas.
North Dakota, South Dakota, Minnesota
In the Northern Plains, a diverse region comprised of high-quality, tillable farmland, grassland and recreational property, land values for high-quality land continued to decline by $400 per acre average in North Dakota from June 2015 to June 2016; by $100 per acre average in South Dakota; and by $900 per acre average in Minnesota.
“In the majority of the Red River Valley, prices range between 4,000 to 5,000 dollars per acre for high-quality land,” said Brian Mohr, FNC area sales manager in Garretson, South Dakota. “Prices range between 1,500 to 2,500 dollars for poorer quality land.”
Land values for top-quality land in southeast South Dakota has remained stable. Prices drop significantly west of the Missouri River pheasant belt.
Land sales in southern Minnesota range between $5,000 and $8,000, down slightly from last year.
Washington
In Washington, land values have plateaued, but remain slightly above last June’s level. There’s still significant demand for high-quality farmland by both farmers and investors, said Flo Sayre, FNC real estate broker for the state of Washington.
Land with a high-quality irrigation system is being sold first, Sayre said. There’s still strong demand for fruit ground.
Labor costs change due to the minimum wage increase and modifications in what other countries are importing could be major factors in future land and crop values, she said.
Farmers National Company currently manages more than 4,850 farms comprising more than 2.1 million acres in 24 states. The company has sold more than 3,700 farms and more than $2.65 billion of real estate during the last five years. It also provides auction, appraisal, insurance, consultation, oil and gas management, lake, hunting lease and forest resource management services. 
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Dave Natzke
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