2024 Brings Resilient Ag Land Market

Despite increasing pressure from current commodity markets, rising interest rates and inflation, the land market seems to be moving into 2024 maintaining the value increases it has built during the past three years, says Omaha-based Farmers National Company (FNC).

The sharp increase in land values from 2022 to 2023 that was primarily driven by strong commodity markets has slowed, but those values are being maintained, according to an analysis of FNC sale results for the past six months.

Buyer demand remains strong for good quality cropland across the Midwest, while the supply of land for sale remains limited. “These factors further play into the dynamics of the supply/demand scenario and remain a large factor in supporting current values in early 2024,” says Paul Schadegg, FNC’s senior vice president of real estate operations.

Who are the buyers? Successful buyers continue to be local farmers/operators in nearly 80% of transactions. Available cash has played a significant role in how aggressive buyers are able to bid at land sales within the past several years. “Current market operator’s equity positions have narrowed over the past year and lending has increased as outlined in the most recent Ag Credit Survey from the Federal Reserve Bank of Kansas City,” Schadegg notes.

Along with the increase in lending comes the expense from interest, which will cut into potential net farm income in the coming year for farm operators.

What continues to motivate land buyers? Buyer motivation varies between a farm operator and a land investor. A farm operator is typically interested in land that fits well into their operation, is adjacent to other owned land, or has historical ties. The investor typically looks for return on investment, a diversification to their investment portfolio, or potential hedge against inflation.

“One common motivation between these two types of buyers is that land has proven to be a valuable asset due to the historic appreciation in ag land values. Over the past 25 years, average land values have experienced steady growth following the 1980s farm crisis. Under a strong ag economy, Farmers National Company expects that trend to continue,” Schadegg comments.

What dynamics will affect land values? Commodity markets and input costs will impact land values in the short term. As farm operators make cropping plans for 2024 and buying decisions for expansion of their operations, the key word will be profitability, says FNC. Easing interest rates and reduced inflation across the country will bring some positive light to balance sheets. However, the current world conflicts, geopolitical events, and U.S. political processes could create both positive and negative impacts on the ag economy and subsequent land values.

Company statistics remain above five-year averages. Operationally, FNC completed nearly 700 transactions across the Midwest in 2023, accounting for $600 million dollars of sales volume. “More than 55% of these transactions were conducted through the company’s auctions, providing true market exposure. While this is off the extraordinary pace set in 2021 and 2022, it remains above the five-year company averages,” notes Schadegg.

Moving into 2024. FNC’s pipeline has been filling up with both land auctions and listings at a volume very typical for the start of a new year. Many landowners are making the decision to take advantage of the current land value strength and sell into a market with a large pool of motivated buyers. At the same time, other landowners have contemplated the current appreciated value of their land assets and determined there is no better investment outside of land. These landowners are making the decision to retain ownership and further limit the available properties coming into the market.

EDITOR’S TAKE:

Farmers/ranchers continue to benefit from stronger than average land values. As the article points out, with the pace of appreciation in land values, they see no other investment that could outperform farmland. It obviously increases their balance sheet and makes them top of the ladder borrowers when necessary. However, as the article also states, many farmers have cash to make land purchases. In any event, it appears that at the very least farmland will maintain current values well into 2024. Also, we expect commodity prices to increase as a result of the geopolitical conflicts that could increase U.S. farm exports. If that scenario plays out, then expect land values to resume their upward ascent. This is precisely why we continue to say – put farmers and ranchers at the top of your customer prospect list!