Doug Hensley is President of Hertz Farm Management. He says, “Since the first of the year, there haven’t been many highs made in the land market in the Midwest. Whether you’re in Illinois, Iowa, Southern Minnesota or Nebraska, it’s all the same story - strong land values, but no new highs.”
Here are three land market drivers Hensley advises producers to consider as they move through 2023:
- Interest Rate Flare-Up
One year ago, you could borrow a long-term fixed-rate mortgage at 5%. Today, you’ll pay anywhere between 7% and 8%, depending on which lender you talk to.
While interest rates have changed, Hensley says that hasn’t stopped his customers from buying land; however, it has put an end to the market highs. But interest rates aren’t the only reason the record sales have peaked.
- The Trouble with Input Costs
A year ago, the headlines were focused on climbing input prices. Last year in April, a Farm Journal survey found 87% of retailers experienced difficulty sourcing inputs for 2022, with particular issues in fertilizer and the herbicides glyphosate and glufosinate.
According to Hensley, tight margins brought on by input prices are not lost on producers this planting season, and it’s showing in farmland prices. Coming into spring planting this year, we’re still sort of in the 2022 market. In the last 90 to 120 days, there haven’t been a lot of new factors in the market. Buyers and sellers are holding steady, waiting for the next move. And, that next move will be made during the growing season, according to Hensley.
- Busy Planting Season
With planting heavy on landowners’ minds, farm sales are being pushed further from focus. But once the first half of the growing season is through, Hensley says to fasten your seatbelts.
“As we move through the next few months into the growing season, the new crop bids will line up and more people will start to form their farmland purchase plans,” he says. “Then we’ll start to see the narrative play out on a macro-scale and that’ll set the mood for the market as the summer wears on.”
With these three factors in mind, Hensley offers buyers and sellers some insights:
“Seven out of 10 farms are bought by farmers. Make no mistake they are leading the market, and they’re buying with cash. I would bet five out of 10 of our deals close in cash,” Hensley says. “There’s still a ton of money sitting in the countryside.”
But farmers certainly aren’t in a hurry to sell any land. Hensley points to the data in a 2018 study by Iowa State University. We know that 82% of Iowa farmland is owned without a mortgage. Therefore, a lot of Iowa farmland owners aren’t affected by these markets because they don’t need to sell or even want to sell. “While,” he says, “land is in real strong hands right now, the next few months will help preview land availability and sale price expectations for fall 2023.”
EDITOR’S TAKE:
Mr. Hensley certainly paints an optimistic picture. Did you read the part where he points to the amount of cash still in the countryside and that farmers/ranchers are paying with cash? You might want to read that again. It simply underscores what we have been saying for some time now – farmers/ranchers have money and they are willing to spend it on things that are important to them, like land or trucks. They can be your best customer prospects, especially now when many other customers are pulling back due to inflation, lower real wages, higher interest rates, etc. Be sure to mention your CAD membership and AgPack® in your marketing campaigns. Sign up for AgTruckTrader.com, a site designed specifically for farmers and ranchers to see what you have to offer.
