Land sales remain strong as cropland demand expands

Land sales remain strong as cropland demand expands

While land prices have stabilized compared to the double-digit price increases seen in recent years, levels are at historical highs.

Land sales remain strong as cropland demand expands
LAND sales finished strong in 2013, spurred by demand for additional cropland, according to Farmers National Co., a farm and ranch real estate company.

Farmers National reported record real estate sales of $750 million for 2013, compared to $640 million in 2012.

Activity during the first half of 2013 slowed slightly because of a surge in sales at the end of 2012 that was prompted by changes to tax law. However, sales turned upward to round out the year and finished strong, according to Randy Dickhut, vice president of real estate operations at Farmers National. He noted that trends indicate that an active pace will continue through the first half of 2014 for most regions.

Within Farmers National's 24-state service area, there was continued widespread auction activity at year-end, and its real estate agents worked 45 auctions during November alone. Out of 829 properties sold by Farmers National in 2013, more than 40% sold at auction.

While land prices have stabilized compared to the double-digit price increases seen in recent years, levels still are at historical highs. Prices for high-quality land nationwide ranged from $3,500 to as high as $12,000-13,000 per acre in areas of Indiana, Illinois, Iowa and Nebraska. Values in the Upper Midwest are also very strong, with sales reaching $10,000 per acre, Farmers National said.

"Farms remained profitable in 2013 despite lower commodity prices, in part due to reductions in fertilizer expenses of nearly 30%," Dickhut said. "This is prompting farm owners to continue buying premium land to expand their operations. Interest in average to medium-quality land has waned, slowing activity for such property."

Prices for pasture land have increased in places like Nebraska as a result of Texas livestock producers transplanting herds due to the 2012 drought. As regions in Texas continue to recover from the drought, land values there are forecasted to rise 5-7%, according to Dickhut.

A price drop of 40% for sugar beets has affected land values in the northern region (North Dakota, South Dakota and western Minnesota). An income reduction of nearly $350 per acre in some cases is taking some land buyers out of the market. Dickhut pointed out that despite this pressure, values are fairly stable in this area.

Farmers continue to be the primary land buyers. Dickhut reported that investor interest in land has been more guarded as many are not willing to pay high prices without a guaranteed strong return. Recent success in the stock market is generating interest in alternative investments, pushing outside investors to choices besides land.

"The market for farmland overall remains strong, particularly for quality land, even though buyers are getting more cautious," Dickhut said. "The impact of changes in commodity prices, expenses and interest rates will all play into year-end results."

In 2011, data gathered for the U.S. Department of Agriculture's annual "Agricultural Resource Management Survey" revealed that 1.68 million U.S. farms had cropland, and the average size was 234 acres (Figure).

Interestingly, the survey found that 80% of farms were smaller than the average, with a median size of 45 acres, but that 54% of the cropland was on much larger farms of 1,000 acres or more.

Strong land sales will, more than likely, alter the 2011 numbers, but many variables are potentially changing the landscape of how land sales will fare at the end of 2014.

Volume:86 Issue:03

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