Source: Farmers National Co news release
Over the past year, multiple reports have indicated that farmland prices were steady to slightly changed either up or down. With the lower farm incomes of the previous four years and the anticipation of a fifth, normal expectations for land prices would be for further downward movement.
Add on the effect of very low grain prices and slowly rising interest rates which brings agriculture to the question of when will land prices tank. This is extremely important to producers and landowners as real estate comprises nearly 80% of total assets in U.S. agriculture.
Several fundamental and market factors are helping hold land prices at current levels. The number one reason is that there is less land for sale on the market than most years. Demand for good quality farmland is adequate enough in most areas to absorb the lower supply for sale in the open market. Farms normally only come up for sale once every three or four generations, so when a neighboring farm comes up for sale, buying interest usually surfaces.
Another factor that has been supporting land prices have been interest rates that remained historically low which fostered investing in a long-term asset like land.
But what are the dark clouds on the horizon for land prices? The most immediate concern is how long will grain prices remain this low? Will tariff issues have a deeper and longer lasting effect on farm incomes or is it short lived? Will the gradual interest rate rise begin to affect land capitalization rates and buying decisions? Will there be other outside influences to turn the buying mood south? Will farmer financial stress bring about an increased amount of land for sale?