Will the year ahead bring higher peaks, a flat plateau or dip into a valley for farmland values? Jim Rothermich of Iowa Appraisals shares his insights in how the red-hot land market we’ve seen the past few years is showing signs of cooling off. “The hyper volume of acres going to auction started happening in mid-2021 and kept going to 2022. As we got into 2023, the first quarter had pretty aggressive numbers going to auction, and then it started slowing down,” he says. “The frequency of $20,000 an acre or more really slowed down in the spring and summer.”
Drought, Interest Rates and No Sale Auctions
As for 2024, Rothermich says the level of drought already occurring in much of the country has potential to impact the volume of land sales.
“Drought makes people pull back,” says Rothermich. “It seems like with crop insurance we don’t see those valleys as much on a dry year, but we haven’t had a major drought since 1934 or 1936 – so we’ll have to see.”
Another factor to watch continues to be interest rates. “People call in and say they’re interested in a farm, then talk to their banker and say ‘we’re out’. That’s shrinking the buyer pool, and it’s affecting the market,” he says. “What I’m hearing from my banker friends is interest rates will eventually go down to 5% to 6%, and that’s going to be the normal. Those 3% to 4% interest rates are a thing of the past.”
He adds there have been several no sales at auction recently, which could impact the market as well.
“We’re going to continue to see some records set in some counties, and we’re going to continue to see sales. But I think the auction companies are going to be more selective in what they take to auction because of the chance of a no sale,” Rothermich says. “They’re going to do more traditional listings. So, I think the volume is probably going to go back to normal.”
Cash Rents Predict Strength in 2024 Land Values
When it comes to cash rents, Rothermich says values remain strong despite lower commodity prices.
“Some of these recent cash rent auctions, there’s just no weakness in it at all,” he says. “A lot of them are three-year terms, so it seems like those tenants are forecasting the next three years to be pretty decent.”
According to Rothermich, his is a trend he predicts will help keep the overall land market steady in the year ahead.
“I see the market gradually cooling off in 2024,” he says. “It’s not going to fall out of bed because these rents are too strong. I think it’s just going to slowly settle down and go back to normal.”
EDITOR’S TAKE:
Most people who study market activity over time realize they go up and down, even farmland. The market for farmland has been on an uphill climb the past three years or more. Now, for all the reasons listed in this article, it appears that farmland sales and values will gradually return to “normal”. What does “normal” mean”? Not as much land for sale, not as many buyers (except in special instances) and values that are more in line historically. Does this mean farmers/ranchers will no longer be creditworthy? Not on your life! Their balance sheet will still be extremely solid and creditworthy. They should continue to be at the very top of your customer prospect list. And, remember to list your inventory on AgTruckTrader.com® so they know where to come for that new or qualified used truck or SUV!
