What is farmland worth?
Here we are at the New Year again. Those of us in agriculture generally begin our new year with hopeful optimism for a productive and profitable year ahead. Reflecting on 2023, the ag sector saw good yields, rallying cattle markets and strong farm incomes.
The Midwest also saw record-breaking highs in farmland sales in 2023. With the uncertainty surrounding politics, the economy, global trade, and conflicts overseas, we often hear the question, is now the right time to buy farmland? In my lifetime, farmland values have recovered from the crash in the 80s to its current record highs. We could continue to watch them go higher, or they could roll back. Rising interest rates and high demand for farm real estate brings in the question if we have hit the peak of land prices.
At DTN’s virtual Ag Summit in December, farmland specialists were in general agreement about steady farmland values for this year. The consensus was exceptional yields coupled with the potential for declining interest rates, layered on top of soybean prices hanging in there at a high level will bring us steady land values at these high levels through 2024. The Federal Reserve Bank of Kansas City report released in late November also echoed this perspective as “Growth in non-irrigated farmland values softened further in the third quarter but remained firm, with increases averaging about 5% from a year ago in most regions,” the report said.
Every year, the USDA surveys farmers across the country to estimate the average amount per acre that U.S. farmland is worth — meaning how much that land would reasonably sell for under current market conditions. For cropland specifically, the rise has been steeper – now $5,460 per acre compared to $5,050 in 2022, or an 8.1 percent increase, and more than double the average per-acre value in 2009. Missouri’s 2023 state average for all farm real estate was $4,500, slightly below the state average of $4,610 per acre for cropland. For U.S. pastureland, the average value in 2023 was $1,760 per acre – a $110 increase over 2022 and a 66 percent increase since 2009.
As we all know, there isn’t an oversupply of land available in the market right now. Options are mostly farmers hitting retirement or property owners who aren’t operating it themselves and want to capitalize on good values. The general low supply of available land coming to the market for sale provides value prop up in itself. Assuming there isn’t a supply shock, speculators expect neutral appreciation rates in the coming years.
Another factor is interest rates that are significantly higher than they were 18 months ago, and it’s hard to pinpoint exactly how rates will influence the land market.
A Third Quarter farm loan performance article from the Federal Reserve of Kansas City reported loan demand being up as well as farm debt balances which gives indication buyers are motivated to take on a purchase. Delinquency rates on both real estate and non-real-state farm loans were also down.
As we head into 2024, keep your eyes on fertilizer, pesticide, and energy costs, which will be contributing factors for the farm’s bottom line and could correlate with real estate values. No one can definitively say that farmland prices will continue to go up or whether they will go down. What we can all agree on is that farmland has been a good investment, and there are strong economic forces that indicate it will continue to be a good investment going forward in the long run.
Erin Harvey is vice president and compliance officer at Lamar Bank & Trust Company in Lamar, Mo. She can be reached at [email protected].
