At this time, the market for quality land is steady to slightly stronger, and it appears that strength should continue as the farmland market finds its footing, but outside influences will come into play as the year unfolds. 

Randy Dickhut, senior vice president of real estate operations for Farmers National Co., said there are a number of positive factors supporting current land values.

“The industry has experienced a post-harvest bump in land prices in most grain-producing areas. With above-average crop yields in most locations, farmer optimism has increased as has the bidding for quality cropland. The supply of land on the open market remains low, while the number of buyers and demand are adequate for what is on the market at this time,” Dickhut said.

The historic run-up in land prices during the decade leading up to and including 2013 faded in to the background as the past four years instead witnessed a steady and measured decline in values for crop and grazing land throughout the Midwest and Great Plains. Some regions experienced the decline sooner with a larger drop-off in land prices, whereas other regions saw less of a decline. Good-quality land generally declined less, while lower-quality tracts saw weak demand and a bigger price decline.

The most recent agricultural survey from the Federal Reserve Bank of St. Louis, Mo., reported that quality farmland values rose 5% in the fourth quarter. At the same time, ranchland and pastureland values increased 14.8%, which is the largest gain ever reported by the "Agricultural Finance Monitor."

“The St. Louis metropolitan area continues to creep up U.S. Highway 61 toward this area. In response, demand for lower-quality land for recreation is rising as the economic outlook for people from the city improves. This also causes other classes of land to hold their value,” a Missouri lender stated. Cash rents increased from a year earlier: Quality farmland rose by 3.9%, while rents for ranchland and pastureland rose by 10.1%.

Iowa State University reported that the 2017 state average for all qualities of land was estimated to be $7,326 per acre as of November 2017. This is an increase of $143 per acre, or 2%, from November 2016. This is the first increase after three consecutive years of decline.

“Buyers of farmland are being more deliberate about their decisions, but farmers and investors are very interested in purchasing the right piece of ground that makes sense for them. Lenders are being more cautious in the amount of money they will lend on a land purchase, but there is still enough capital in the country to create demand for good land,” said Sam Kain, national sales manager for Farmers National based in West Des Moines, Iowa.

Areas within this three-state region of South Dakota, North Dakota and Minnesota have been experiencing steady to slightly increasing land values. “In eastern North Dakota and South Dakota, we are seeing, for the first time in three years, a slight increase in the selling price for good- to high-quality cropland,” said Brian Mohr, area sales manager for Farmers National in Garretson, S.D.

Minnesota land values are holding steady from year-ago levels, too. Even though farm incomes have been challenged during the past three years, farmers are competing to buy good-quality cropland. “Farmers are interested in adding the right type of acres to their operations and seem willing to bid up to get the land purchased,” Mohr said. Conversely, range land in western South Dakota has not seen the buying interest or any strength in prices at this time.

Real estate sales activity in Nebraska has seen sales volume jump ahead of the previous levels in October and November. Paul Schadegg, area sales manager for the company, noted that “good-quality land sells well, whereas lower-quality crop or grassland struggles to find buyers.”

Other factors also are providing support for today’s land prices, Dickhut noted. Continued low interest rates are helping create a demand for agricultural land as a long-term investment for individuals and institutional funds.

“In general, there is still enough purchasing power in the hands of farmers to compete for good land or land that helps grow ones operation. We are also seeing a small increase in 1031 tax-deferred exchange buyers as they move to trade into different land or to diversify out of other real estate holdings and into cropland,” Dickhut said.

Factors weigh on prices

However, there also are factors on the horizon that could negatively affect land values, Dickhut noted. Current farm economics are not conducive to strength in the land market. Low grain prices are keeping overall farm income levels depressed. That means that lower incomes are reducing the cash flow necessary to finance crop inputs, equipment needs and land payments, leaving less cash for land purchases.

“Individual and institutional investors are well aware of the lower grain prices and incomes. The resulting reduction in the return on investment for land has kept some investors out of the land market during the past few years,” he said.

Another factor that may weigh on land prices is that lenders are being more cautious in the amount of money they will lend for agricultural land purchases. This could dampen demand as farmers and ranchers are the predominant buyers of crop and grazing land, Dickhut pointed out.

“Cash flow and equity concerns of farmers could generate additional land for sale in the market as some producers liquidate either land or equipment to shore up their finances. The magnitude of these additional land sales will probably be small and vary by region, but the potential for an increase in the supply of land on the market bears watching,” he said.

The final factor that could have a downward effect on land values are the outside influences. This could include negative outcomes for trade that U.S. agriculture depends upon, unexpected consequences from tax laws and potential changes in the next farm bill.

“The next six months will determine the direction of land values. Economic and financial factors will become more evident for producers and lenders. The factors and the outside influences will become better defined as we move through 2018,” Dickhut said.