Source: blog by Randy Dickhut, Senior Vice President – Real Estate Operations, Farmers National Co., Omaha, NE
If you remember back to the start of 2020, land prices were strengthening somewhat in many areas as there was a bit of optimism in agriculture. Grain yields for most producers were better than expected after the tough planting season. The last of the 2019 Market Facilitation Program payments were coming and grain prices were moving in an upwards direction with better demand expected after the resolution of the China trade issues. The better income outlook and continued low interest rates brought enough buying interest in cropland to boost prices during the first several months of the year.
Then Covid-19 came on the scene and American agriculture and food production were hit head on with issues never dreamed of. Ethanol demand temporarily dropped off a cliff, meat processing stopped altogether in some plants, and distribution networks to grocery stores and consumers were strained. The land market took a pause till early summer as buying and selling interest shriveled down to nothing. Uncertainty of what would come next brought a halt to making selling and buying decisions.
Interest in ag land started to resurface in the summer as agricultural and food production continued to go on despite the challenges. During this time, we started to see increased interest in owning land of all types. Investors who never owned ag land wanted to own some as a safe, long-term investment. Others wanted to buy small acreages in the country in order to have a safe place of their own away from everyone else. Still others had cash or other investments that they wanted to pour into real estate, especial farmland. All of this brought increased demand and a larger pool of buyers into the overall land market.
During the last few months of the year, rising grain prices to levels not seen for several years coupled with the additional Covid-19 related support payments, fueled an expected large increase in 2020 net farm income. Add in the rising demand for food and ag products along with continued low interest rates for a few more years, and optimism in agriculture jumped. This optimism has fueled the demand for good cropland and the resulting surge in prices as farmers are aggressively buying land while investors also enter the market. The rising demand to buy land is evidenced by the fact that real estate sales for Farmers National Company during October and November were up 49% from the same time period a year ago.
Rising demand with a low supply normally brings higher prices in a marketplace and that is what is happening in the ag land market. Sales prices for cropland are rising and for some sales, reaching levels last seen in 2012. The new year will determine if the same factors bringing optimism to agriculture and the farmland market will continue to support land prices in the months ahead.