Amid a myriad of pressures, average farmland values are still holding their value, at least for now. Prices for farmland declined between 2014-16 in many areas of the nation before plateauing in 2017 and early 2018. In the past couple of years, however, farmland values have been under pressure due to reduced crop yields, the ongoing trade war with China, low commodity prices and reduced farm profitability. And now, fate has thrown another wrench into the works with Covid-19, which have some worried what could be around the corner.

Despite these disruptions which have plagued the industry recently, overall land values have remained fairly stable due to relatively low long-term interest rates, a limited supply of land being offered for sale and relatively strong buyer interest. 

“We saw some bump up in values over this winter, and then you get into this period where all of a sudden the coronavirus becomes an issue,” says RD Schrader of Schrader Real Estate and Auction Company. “However, I think it is too early to say what will happen right now. In this economy, a lot of people will see land as a safe investment, especially when they see investments in the stock market deteriorating, and then you’ve got the people who don’t really want to make decisions during this period.”

According to the USDA National Agriculture Statistic Service, United States farm real estate value, a measurement of the value of all land and buildings on farms, averaged $3,160 per acre for 2019, up $60 per acre (1.9 percent) from 2018. The United States cropland value averaged $4,100 per acre, an increase of $50 per acre (1.2 percent) from the previous year. The United States pasture value averaged $1,400 per acre, up $30 (2.2 percent) from 2018. U.S. farmland value remained high in 2019, averaging $3,160 per acre (a modest increase of 0.2 percent over 2018). Farm income was forecast to increase nationwide in 2019 (see Farm Income and Wealth Statistics for details.) This increase, combined with historically low interest rates, contributes to the ability of the farm sector to support higher farmland values. The figure below shows nominal and real (inflation-adjusted) national average farmland real estate values since 1969. While nominal farmland values have increased modestly since 2016, real farmland values have remained flat since 2014.

Vince Bailey, Executive Vice President and Chief Credit Officer at Farm Credit Mid-America agrees that now might be too early to have any concrete idea of which way the scales might tip, or if they would at all. “I think it’s too early to really tell right now what will happen with farmland values. Another thing to remember is that thanks to the MFP (Market Facilitation Program), 2019 net farm income was the highest since 2013.”

The MidWest comes off a strong year, both in land values and farm income, thanks to the MFP payments. According to the Federal Reserve Bank of Kansas City, farmland values increased slightly in the fourth quarter of 2019, with cash rents remaining stable. Nonirrigated farmland values trended higher at a modest pace in 2019 and increased four percent in the last quarter. The demand for farmland remained strong, which also could have played a part in supporting farmland values. The share of farmland purchased by farmers since 2014 has declined from 81 percent to 74 percent but remains elevated by historical standards.

The KC Fed believed that strong demand and lower interest rates may have contributed to higher expectations for farmland values in 2020 and for the first time since 2014, more bankers expected farmland values either to remain steady or increase compared with those that expected farmland values to decline. Although 37 percent of bankers expected farmland values to decline somewhat, half expected no change, and 14 percent expected farmland values to increase moderately in 2020.

In an Illinois Land Values Webinar, David Klein, vice president with First Mid Ag Services, says that current stock market conditions could be beneficial. “(Last year) will be a year most farmers will never forget,” Klein states. “Crop planting challenges across the state left the most unplanted acres since the spring of 1974. Most farm incomes were protected by crop insurance proceeds and USDA market facilitation payments. As we begin, 2020 farmland values seem be holding firm as farmland owners and investors continue to seek the safety and security of this tightly-held asset class with its unique investment characteristics in Illinois and other Midwestern states. Individual micro-markets of strength and weakness do exist, and this can create opportunities for sellers and buyers.”

So while the specific effect may be cloudy currently, Schrader says that we will see soon enough how things play out. “While it’s a little tough to see at this stage,” says Schrader, “land values usually shake out in the end.”