Experts Say Odds Are - Skyrocketing Farmland Prices Will Continue

Farmland recently sold for $13,400 per acre in Cedar County, Nebraska; $17,000 per acre in Douglas County, Illinois; $26,000 per acre in Johnson County, Iowa. Numbers like this have delivered numerous mind-blowing farmland sales. But will this runup in values continue? Odds are likely, according to a key ratio that compares farm debt to farm incomes, according to Mike Walsten, Contributing Editor to LandOwner. "The farm debt-to-income ratio suggests the land market is not so heavily leveraged that a downturn in profits will bring a rush of forced land sales that would crush land values in the short term," Walsten says. "I expect the land market will continue to see strong demand well into next year."

The ratio reflects how much total net farm income, as forecast by USDA, is available to service total farm debt. A high ratio, such as $6 of debt to $1 of net income, means debt is too high and income too low. If a high ratio exists for three years or longer, it signals farmland foreclosures and lower land prices are on the horizon.

For 2021, the ratio eased back under 4. That's based on USDA's recent forecast of $113 billion in net farm income.

EDITOR’S TAKE:

One more verification that things are going pretty darn well down on the farm/ranch. The debt-to-income ratio actually trending mostly down the past several years and going below 4 this past year is a very strong indicator that land values will likely continue their upward trajectory. This is precisely why we are on such a campaign to encourage all CAD members to think about what is happening to the general economy and contrast that to what is taking place in the agricultural economy. Our terminology is “Look Beyond Your Lot”, but it’s basically to get you to think about who your best customers are likely to be in the next three, six, twelve months and beyond. We firmly believe it is the farmer. That’s why we strongly encourage you to target agricultural customers in your area.