Source: blog by Randy Dickhut, AFM, Senior Vice President – Real Estate Operations, Farmers National Co., Omaha, NE
As the calendar flips into a new year, farmers, ranchers, and landowners are pouring over the financial numbers of how their business totaled up for the past year. For producers, profit and loss is calculated, assets and liabilities are tallied, cash flows and loan needs are projected for the upcoming year, and everything is readied for the meeting with their lender.
It is an important time of the year for farmers and ranchers as they evaluate their operations and seek capital to operate another year. Most non-operating landowners don’t have the need for operating capital, so their year-end is different, but they are still calculating profits and valuing their main asset, land.
A new year also brings a time to look ahead and project how commodity prices, interest rates, and land values will react during the next twelve months as these important items dictate profitability and net worth of operators and landowners. Weather is a wild card that cannot be predicted with any degree of certainty, let alone how it will actually affect final yields as evidenced by the weather variability of the past few years that have also experienced record yields. Interest rates and Treasury Note yields are important factors affecting land values.
Both seem to be on somewhat of a plateau or a very slow rise at this moment based on Federal Reserve comments and the marketplace. Commodity prices are working through big U.S. crops, world demand, changing tariff affects, and planting time projections all coming together to make it difficult to predict price levels this coming year especially if you add in continued weather variability.
Finally, we get to land value projections for the upcoming year. The supply of land for sale on the market and the level of demand will determine the direction of land values in 2019. Farmers National Company is seeing a small increase in sales activity mostly prompted by non-operating landowners deciding it is time to sell.
But, we know there will be some pickup in financially encouraged sales on the open market and also farm sales done quietly by producers. This will vary by region depending on where there has been poor crop production or especially weak commodity prices which will stress producers more in these areas than others where conditions were better.
The demand to buy farmland continues to hold fairly well in most regions, but has definitely turned more cautious over the past few years. There still seems to be adequate capital in a neighborhood to purchase the limited amount of good quality farmland that comes up for sale. With another year of lower farm incomes, one begins to wonder how aggressive farmers and ranchers will be in adding a large capital purchase onto shrinking cash flows.
Given the factors in place at this time, it seems like the land market in 2019 will react much like it has the last several years, but with an increased amount of caution on the part of buyers. Beings a good farm only comes up for sale once every three or four generations in the right location for a farmer buyer, there will be interest to buy it, but with an ever sharper eye to the financial factors surrounding the purchase. Investor buyers are being patient to make the best buys while avoiding any over bidding for a farm.
Of course, outside influences can change any of these factors and these are areas that no one knows what could or will happen in 2019.