Despite market head winds, land values continue to be strong, particularly in the Midwest. Paul Schadegg is Senior Vice President of Farm and Ranch Management and Real Estate for the Farmers National Company, and says the market in the “I” states continues to display resiliency.
“Good quality, high productive soils are still bringing a premium, and that happens in Iowa, especially Illinois and Indiana, have kind of been hot beds lately. Have seen some really good sales out there. We’re still approaching $20,000 an acre out in those areas, we’re still seeing a lot of 12 to $14,000 sales for good quality land in Iowa. The only time we see it kind of tick down, that average land in Iowa is probably hitting closer to that 9000 range now. So that’s definitely a settling in value.”
Schadegg says farmers continue to make up about 75% of farmland buyers.
“The producer is looking at it from a standpoint of trying to build his operation to scale so it makes sense, with the equipment investment that he’s got. There’s a certain amount of emotion, legacy involved with that, and producers are the ones that typically have that strong connection to the land, and so that can drive their interest or their motivation to buy land.”
Investors, however, have a different motivation.
“The investors are looking at more of a, ‘What can bring me an ROI? What can help me diversify my investment portfolio?” But they’ve also seen over the past, if we look over the past, I mean, I can go back 40, 50, years, but especially the last 25 years, that steady appreciation in land value. Some of those investors look back across that thinking, “Wow, we kind of missed the boat here. We should have invested 25 years ago.’ But they also see the fact that there’s not going to be much more land developed. In fact, we’re losing land as we go along.”
Schadegg says it all comes back to Economics 101: supply and demand.
“There’s just simply more buyers, willing buyers than there are willing sellers out there. And as an industry, we’ve seen about a 25% decrease in land offered for sale over the past couple years, and that continues to be the trend. We still, as a company, we still are very active, very active real estate business, but definitely not as much as we saw the past five years.”
Interestingly, Schadegg indicates that land values usually follow the grain market, but that’s not been the case recently.
“People are looking out a little bit farther. They’re not reacting to the day-to-day news, and they see the strong demand, especially for corn in the world, and that the projection is that we are not going to be able to fill a lot of that demand. So the downturn in the grain markets right now could change as we get through the next few months, but right now, the feeling is that that might be a quicker turnaround than what we may have anticipated.”