One of the hottest topics circulating around the agriculture industry the past few years has been the land market. In 2019, the topic is open for more speculation than ever as land values and the market are on edge trying to decide if prices will be pressured down or if the market will establish a bottom.
Land values have exhibited an underlying base of strength from several factors including historically low interest rates, low supply of land for sale and adequate buying capital. The other side of the land value equation is seeing increased uncertainties that could weigh down the land market.
“Despite the slower land market and cautious buyers, Farmers National Company is experiencing a strong 29 percent increase in the number of acres sold by the company compared to last year and 22 percent over two years ago,” stated Randy Dickhut, senior vice president of real estate operations. “Farmers National is drawing landowners of all sizes by its successful marketing and sale of both larger and smaller tracts of land. Land market experience provided by local Farmers National agents coupled with the nationwide marketing presence of the company is the expertise that enables us to sell any size land holding.”
The biggest concern at this time in the agricultural land market is the financial health of producers, noted Dickhut, who directs real estate brokerage for Farmers National Company. U.S. agricultural is in its sixth year of a downturn with overall net farm income for 2019 projected to be down 50 percent from 2013. Working capital has declined almost 70 percent since 2012 and inflation adjusted farm debt is at the highest level since the 1980s, he said. Low commodity prices coupled with rising costs have squeezed profits and working capital causing farmer buyers of land to be more cautious, he added.
“Farmers National is seeing an increase in the number of farmland sales by financially stressed producers due to multiple years of reduced income,” Dickhut said. “Some of these sales are sold quietly and not exposed to the marketplace to get top dollar. Other sales are coming from producers who are pro-actively liquidating a land asset to improve their balance sheet and cash flow. Farmers National is now handling an increasing number of land sales and receiverships for lenders.”
Overall, U.S. agriculture remains in solid financial condition despite weakening on a number of fronts. Debt to asset ratios are worsening, but remain below recent higher levels. The number of farm and ranch bankruptcies is increasing, but are far below what was experienced in the 1980s. Land values that have held up better than expected have supported the growing level of financing required for some producers, Dickhut said.
With the known problems that agriculture and the land market are facing, there are also uncertainties that will have an impact on the sale and price of ag land. Immediate concerns include low grain and milk prices and growing season weather. Trade issues continue to have short-term effects on commodity prices and production costs while the potential for ongoing negative impacts becomes possible the longer trade is disrupted. Interest rates look to be stable for the foreseeable future, but world economic performance is more uncertain, Dickhut explained.
Agricultural land values have been surprisingly resilient over the past two years despite the continuation of depressed farm incomes. Supportive factors combined to hold land prices in most areas, especially for good quality farmland, he said. Concerns are building in the land market primarily surrounding the financial health of farmers and ranchers.
“As 2019 unfolds, the land market will remain on edge watching farm finances, weather, and trade issues. The outcome of these and other unknowns will guide which direction land values will move over the coming months. With the land market on edge, buyers and sellers of land need the most trusted advice available to navigate the uncertainties,” Dickhut said.