Continued volatility and uncertainty in commodity markets and the economy in general have caused farmland sales volume to reach a record high—in Iowa and in the Midwest as well. Uncertainty and market volatility are creating strong sell-side activity and buy-side interest for Iowa's farmland. Market forces and strong commodity prices continue to create record demand and record sales volumes.
That's the conclusion of a report released June 13 by Farmers National Company, a large farm management firm headquartered in Omaha, which manages farms in Iowa and a number of other states. The report compares land values by region, for 2011 compared to 2012.
Farmers National Company compared 2011 to 2012 land values, by region
What's happening in Iowa? Demand for quality land continues to be very strong in the North Central Region including Iowa, Missouri, Minnesota and South Dakota, says Sam Kain, area sales manager for Farmers National Company in Iowa and Minnesota. Auction numbers in this region are up over 2011, leading to top sales prices for sellers.
"Farmers National Company has completed 49 auctions in this area of the country during the first four months of 2012, compared to 20 auctions during the same period last year," says Kain. "Demand is still outpacing the number of properties available, and quality is definitely king."
"The bulk of buyers are still farmers," he notes. "However, despite continued strong land activity, higher cash rents and input costs are narrowing farmer profits. Only a quarter of purchases in the beginning of the year have gone to investors." In Iowa, top quality land is selling at over $10,500 per acre, Minnesota values are reaching $8,000 per acre, and farmland values in eastern South Dakota have reached $7,000.
In Iowa, top quality farmland is currently selling at over $10,500 an acre
The land market is very strong in the Upper Midwest Region too, which includes North Dakota and Northwest Minnesota, according to Terry Longtin, area sales manager for Farmers National Company in this region. "Buyers are looking for quality land or less productive land that can be improved," says Longtin.
There are fewer properties for sale, as absentee owners and investors are holding onto their land. According to Longtin, increasing net rents and land appreciation is fueling continued ownership.
'Most land is being sold to farmers in the immediate area to expand operations," says Longtin. In North Dakota and Northwest Minnesota, land values are up over 15% in the last six months and up nearly 30% over the last year. Top quality land values are in the $5,000 to $7,000 per acre range, according to Longtin. "Average land values are hitting the $3,000 - $4,000 range, with marginal land values in the $1,500 - $3,000 range," he says. "Many farmers are purchasing land out of the Conservation Reserve Program, and then making land improvements which are bringing them immediate returns."
Illinois, Indiana and Ohio have seen more land come onto the market recently
The East Central region has had bursts of farmland supply, but overall has seen a tight market, according to Roger Hayworth, area sales manager for Farmers National Company in Illinois, Indiana, Ohio, Michigan, eastern Kentucky, and eastern Missouri.
According to Hayworth, large farm owners continue to aggressively add acres, increasing their operations. Strong demand has stayed consistent over the past year with no foreseeable end in sight.
"The goal of farmer operators is to continue to control acreage," says Hayworth. "Productivity has showed continued signs of improvement and current cash rents have increased substantially in the past two years. All of these factors are driving values and sales activity in this area."
While owners are adding land to their farming operations, investors in the market continue to compete with these aggressive buyers, looking for that long-term investment, notes Hayworth. Top prices in the region can be seen in Illinois at $10,500 per acre on average for high quality land. These levels are followed by Indiana showing values up to $9,000 per acre, and Ohio which has reached $7,500 per acre.
Market forces, commodity prices continue to create record demand for land
Market forces and strong commodity prices are continuing to create record demand and sales activity for farmland, but there are several unknowns that could impact the coming year, according to this latest report. This uncertainty is creating strong sell-side interest and buy-side activity, leading to record levels of land changing hands for Farmers National Company.
"Although across the Midwest the inventory of land for sale is still really tight, our company is experiencing increased sales activity. The demand continues to be very strong with increasing prices even at current levels," says Lee Vermeer, vice president of real estate operations at Farmers National Company. "Sales volume at our company is up 40% compared to 2011, setting a record pace. We are projecting that the remainder of 2012 will see continued interest from landowners for potential land sales."
Farmers National Company sold $600 million of farmland in the past 12 months as a total for all the states in which it operates, with $350 million of that coming in past six months. This equates to 800+ farm sales during that time period, Vermeer says.
Positive news for landowners is world demand for grain remains strong
A balance of positive and negative market pressures, along with many uncertainties, is driving current market activity, says the Farmers National report. The positive news for land owners is that demand for grain from world markets remains strong and there is still a limited supply of land—which are the factors that are boosting land prices. In addition to that for land owners, returns have been strong over last year even though input costs for farming have increased.
The uncertainty comes from unpredictability in Europe, potential for inflation, and the looming possibility of tax law changes that would increase capital gains taxes. Also, a good growing season could lead to record production levels and lower commodity prices reducing land profitability. These and other potential changes could slow the land market slightly, according to Vermeer.
"I believe that sales activity will remain strong until some of the market uncertainties become known," said Vermeer. "People still see land as a safe, tangible investment and are willing to keep their money there over the long-term."
Number of land auctions has increased, which helps boost land prices
A high amount of auction activity continues to help boost land prices. Farmers National Company has conducted nearly 160 in the past six months alone. However, according to Vermeer, he is still seeing some landowners selling well below the market, leaving thousands of dollars on the table because they are not adequately exposing their property to the market. "In a competitive real estate market like we are in, the only way to take full advantage of it is to allow the market to work for you," says Vermeer. "Full exposure to the market is the only way to know you received the full value available."
Editor's Note: Farmers National Company, an employee-owned company, is the nation's leading agricultural real estate and farm and ranch management company. The firm has sold over 3,000 farms and more than $1.7 billion of real estate during the last five years. Farmers National currently manages more than 5,300 farms in 24 states. Additional services provided by the company include auctions, appraisals, insurance, consultation services, oil and gas management, lake management and a national hunting lease program. For more information on land listings in your region, visit the Farmers National Company website at www.FarmersNational.com.