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FNC survey: Midwest farmland values continue to hold steady
 

By DOUG SCHMITZ

OMAHA, Neb. — Good-quality farmland values continue to hold fairly steady across Illinois, Indiana, Ohio, Michigan, Missouri and Arkansas, says a recent Farmers National Co. (FNC) survey.

“We are seeing an uptick in our land sales, as more families and inheritors want to sell now,” said Randy Dickhut, FNC senior vice president of real estate operations.

“Within our 28-state service area, we are also seeing more landowners coming to us to market and sell their land, as evidenced by our volume of land for sale increasing 21 percent. These landowners are just deciding now is the time to sell and capture today’s price.”

FNC said overall agricultural land values have held up surprisingly well over the past few years despite lower commodity prices and much lower farm incomes compared to five years ago.

“There are a number of reasons for this, including the low supply of land for sale, cash rental rates remaining stronger than expected and interest rates that have been historically low,” company officials stated.

Roger Hayworth, FNC area sales manager for Ohio, Indiana, Illinois, Michigan, eastern Kentucky and eastern Missouri, said values for good-quality farmland are also continuing to hold fairly steady across the Eastern Corn Belt and Delta regions.

“At Farmers National Company auctions, we are seeing good bidding for quality land in the more competitive areas,” he explained. “Farmer buyers still have the financial ability to make land purchases along with continuing investor interest in this region.”

He said the supply of land for sale in the region has been lower for several years, helping support steady prices, with an increase in private transactions by farmers wanting to trade into a better farm, but few are for financial reasons.

“These behind-the-scene sales tend to be a lower price than if the land was fully exposed to the open market,” he added.

Sam Kain, area sales manager, FNC assistant vice president of real estate and national sales manager for Iowa, northwestern Missouri and Wisconsin, said land sales activity in Iowa held even in 2018, with fairly steady prices. “We saw a slight increase in the number of sales at Farmers National Company this past year in the state. Sale prices for good-quality land were about even, compared to the previous year.”

According to results from the January Purdue University/CME Group Ag Economy Barometer, U.S. producers were more optimistic about the agricultural economy in January, but they remain concerned about farmland values.

“This survey provided us with the first opportunity to measure farmers' sentiment following the announcement of USDA's second round of Market Facilitation Program (MFP) payments and the passage of the 2018 farm bill,” said James Mintert, the barometer’s principal investigator and director of Purdue’s Center for Commercial Agriculture.

“It appears that these two announcements provided a significant boost to producer sentiment regarding both current and future economic conditions.”

But according to the Creighton University Rural Mainstreet Index for January, the RMI for Illinois fell to 52.2 from 54.9 in December 2018. The farmland-price index climbed to 38.3 from December’s 36.2. In addition, the January RMI for Iowa rose to 54.2 from December’s 53.7. Iowa’s farmland-price index increased to 37.8 from December’s 35.6.

What’s the future?

Dickhut said there are some important questions looming about the land market that are causing many to “figuratively hold their breath in anticipation of what comes next.”

“Even though the rate of bankruptcies and forced land sales is low, there is the expectation that numbers will increase somewhat in the year ahead as farmers’ cash flows are stressed,” he explained. “There is also an increase of quiet sales to neighbors or investors where the land is never exposed to the market to see what the true price is.

“The ultimate question here is how many more properties for sale can the market handle before the volume overwhelms the number of buyers and puts downward pressure on land prices?”

Dickhut said while those in agriculture are concerned about the current trade issues and if there will be lingering effects, on the positive side, investors – small and large – continue to be interested in owning agricultural land for the long term.

“The overriding question in the land market is about supply and demand. At this time, there are enough buyers at most sales to bid up the price to a good level for the seller. But as we move ahead over the coming months, will buyers become even more cautious than they are now, while at the same time, will we see more land come up for sale for various reasons?

“All of this is why those involved in the land market, from owner to lender, are holding their breath to see what comes over the next year,” he added.

Erik Norland, CME Group executive director and senior economist, said since 2015, farmland prices have gone sideways. “Farmland values seem to follow real interest rates and the value of agricultural production. Positive real rates might not be good for the value of U.S. farmland,” he said. “A strong dollar could be bearish for crop prices.”

However, “what happens to farmland values in the future might depend upon whether higher crop prices offset the potentially negative influence of higher interest rates, or whether lower prices for corn, soy and wheat compound them.”

2/20/2019