By DOUG SCHMITZ
Since the onset of COVID-19 last spring, interest in purchasing agricultural land has grown, with U.S. farmers feeling more financially secure as very strong commodity prices arrived on top of large government payments last year.
That’s according to Farmers National Co.’s June Land Values Report, which added this growing interest in buying farmland is propelling farmers to bid more aggressively for additional land for the first time since 2015.
“Farmland sales prices are up 5 to 15 percent in the past six months, with most of the increase coming since the first of the year,” said Randy Dickhut, Farmers National Co. senior vice president of real estate operations. “Competitive bidding among interested buyers is really pushing land prices right now.”
He said both first-time investors and experienced buyers are entering the land market as they search for a safe, long-term real estate investment in a low interest rate environment.
He added investor buyers seldom outbid farmer-buyers for a good farm unless they have 1031 tax-deferred exchange funds (a swap of properties that are held for business or investment purposes) to spend in a short time period, with the increase in agricultural land prices happening in most areas of the Grain Belt – and with most types of land.
“At Farmers National Co. auctions, we are seeing competitive bidding push prices for good cropland to levels approaching 2014 values,” Dickhut said. “Average- to lower-quality farms are experiencing stronger sales prices, too, while pastureland increases are more modest.”
Currently, he said the demand for good farmland is outstripping the supply of farms for sale.
“Iowa cropland prices statewide are up 13 percent since January, while Illinois’ prices are up 10 percent,” said David Whitaker, Farmers National Co. area sales manager.
He said the current agricultural land market has more buyers than sellers, with the inventory of farms for sale presently at a low point for all land brokers as buyers have been aggressively purchasing what has been listed for sale.
“The prospect for seven-dollar corn drives the demand for good cropland in the Corn Belt,” he said. “It is making farmers even more bullish to buy farmland.”
He said competitive bidding among potential buyers is delivering the best sales prices to sellers.
“If you want top dollar in my area, a seller needs to take their land to auction to bring out all potential buyers,” he said.
He added the expectation is for more farms to come up for sale as the year moves along due to the higher prices received, and potential changes in tax policy.
“We have already seen increased interest by some landowners as we field calls daily about them wanting to sell in the coming months,” he said. “Our agents are busy booking auctions and sales for later in the summer, and on to the end of the year.”
In Indiana, Michigan, Ohio, and Kentucky, buyers are also actively pushing land prices, the report said.
“We are seeing land prices up 9 to 11 percent for the good cropland in the area,” said Linda Brier, Farmers National Co. area sales manager.
“At Farmers National Co. auctions, we have seen sales well over $13,000 per acre for good cropland,” she said. “Price levels vary by state, but good cropland is strong everywhere. Prices have definitely increased since fall, and even more so since the first of the year.”
Kevin Wendt, auctioneer broker with the Wendt Group in Plain City, Ohio, said land values in the state are also on the rise due to a higher demand and limited supply of available ground, as well as competitive bidding, as the report indicated.
“Land values and sales in our area are at a rate of 20 percent higher than the previous two-year cycle,” he said.
Wendt added while landowners had been afraid to sell during the COVID-19 pandemic, they are opening up to options of selling farmland as soon as this summer, and into late fall.
He added some of the factors involved in sales are retirement and estates, which “seem to be the most for sellers in our area.”
Like Wendt, Jay Allen, managing broker and auctioneer with Allen Auction and Real Estate in Veedersburg, Ind., said land values are on the rise due to a higher demand and limited supply of available ground, as well as competitive bidding.
“That is exactly the same situation we have here in west central Indiana,” he said. “I have numerous buyers, mostly 1031 (which is a swap of properties that are held for business or investment purposes), and very little for sale. Land values here are up at least 15-20 percent over the past 12 months,” he said.
He said some are retirement sales, “but quite honestly, most of my sales are estates. Kids are not local, not attached to the farm and selling the land.”
He said recent sales were the highest he had ever had.
“I sold 339 acres in Mill Creek Township, Fountain County near Kingman, Ind., at public auction on March 17,” he said. “There were 311 tillable acres, sales price $5,050,000, and I charged a buyer’s premium of $88,375,” he said. “That makes the gross sale over $15,000 per acre. I just sold two farms in Richland Township, Fountain County (71 acres and 121 acres), $825,000, plus $16,500 buyer’s premium and $1,425,000, plus $28,500 premium, making them at or near $12,000 per acre.”
He added, “Both of these were purchased by farmers. I have had numerous sales in the past six months, and the demand for farm ground continues to grow at a rapid pace.”
Like Allen, Howard Halderman, president and CEO of Halderman Real Estate & Farm Management in Wabash, Ind., said land values in the state are on the rise.
“Indiana showed an increase of 9 percent year over year, according to the Federal Reserve Bank study released in February,” he said. “Much higher commodity prices, government support prices, and generally good yields from the 2020 crop increased farm incomes, leading to slightly higher rents and therefore, higher land values.”
In addition, he said, the market in Indiana is very tight, with limited supply.
“Higher demand, combined with limited supply, leads to higher prices,” he said. “In addition, historically low interest rates (the Chicago Fed survey found long-term fixed interest rates for farm mortgages to be the lowest in survey history) are helping spur demand.
“Finally, due to the housing expansion, we see 1031 tax-deferred exchange investors entering the market, along with institutional investors creating a very dynamic market (as influencers),” he added.
He said the state’s current status is one of very limited supply, “which is not atypical for the spring/summer time period when the crop is being planted and growing.
“Sales that do occur are 5-10 percent (higher) than 2020, and there is competitive bidding at all auctions,” he said. “Some locations are seeing record prices, levels above the previous high in 2013-2014.”
He said landowners are happy with the increase in asset valuations, improving their balance sheets.
“If they are buyers, the higher prices are not that exciting,” he said. “Investors are somewhat frustrated by the lack of available supply and choices – very similar to the housing market,” he said. “Also improving farm incomes are welcome as we see higher costs of ownership in real estate taxes, insurance, and input costs.”
He said higher farm incomes are leading to landowners keeping their farms – even through ownership generational transfer.
“However, some landowners are watching with concern the debate over increased taxes and changing tax structure for capital gains, stepped-up basis, and estate tax exemptions,” he said.
He said the actions of Congress will influence land sales and the choices families make going forward.
“Today, a landowner can sell and know their capital gains tax rate,” he said. “Going forward, will new rules be retroactive? Will the step up in basis go away? Will the estate tax exemption decrease substantially?
“As a landowner, I am watching these negotiations closely,” he added. “If you are thinking about a sale in the next three years, you may want to accelerate the decision since land values are currently high, and the tax structure is still known.”