No correction yet in land

The upswing continues in farmland sale prices, according to Lee Vermeer, vice president of real estate operations at Farmers National Co.Demand for U.S. farmland is dramatically higher than a year ago.

Key Points

Real estate company sees continued high demand for farmland.

The supply of land for sale is down 30% from historical levels.

Investors are again competing with local farmers for land.

“While 75% to 85% of land buyers continue to be farmers, interest among outside investors has risen,” he says.Also, the amount of land being offered for sale is down 30% from historical numbers.

South Dakota

Prices are still up and supply down for farmland and ranchland in the western region of the farm belt, according to J.D. Maxson, area sales manager for Farmers National Co. in Colorado, Kansas, South Dakota, central and western Nebraska, and Wyoming.

Farmland values have seen increases over the past year of more than 10% in some parts of this area. Buyers in those states see land as a safe investment, and it’s holding its value.

“The appreciation in land values, coupled with strong grain prices, has shielded farmers and ranchers from the economic downturn,” Maxson says. “Landowners are experiencing positive cash flow and are in a strong financial position. Many farmers and ranchers are paying cash for land, reducing their debt- to-asset ratio.”

Higher-than-ever demand

Land auctions held in the past six months have had very active bidding from farmers and investors. Prices in this region are ranging from $3,500 to $6,500 per acre for high-quality, tillable acres.

“Appreciation of land values and high cash rents contribute to a positive return on investment compared to other financial vehicles,” Maxson says.

While some economists predict a possible market correction, Maxson says he thinks prices will remain strong through the rest of 2011 “due to the short supply of land on the market, coupled with the higher-than- ever demand for accumulated acres.”

North-central region

The land market continues to be very strong in the north-central region of the U.S., including Iowa, Missouri, Minnesota, South Dakota and North Dakota, according to Sam Kain, area sales manager for Farmers National Co. in Iowa and Minnesota.

Buyers are looking for quality land, with the majority of sales going to farmers. “There are fewer properties for sale, and the spread between low-quality land prices and high-quality prices continues to widen,” says Kain. “I would say land values in some areas have increased as much as 20% in the last six months, and as much as 25% compared to a year ago.”

In Iowa, top-quality land is selling at more than $8,000 per acre, with Minnesota values bringing in $7,000-plus per acre. While sales of medium-quality land and recreational land in this area have been slow, the pace for high-quality property keeps rising.

Not only is demand for top land still rising, the availability of property for sale remains limited. Buyers are looking for land with high productivity levels, which is a challenge.

“In my more than 25 years in the business, I have never seen more demand than now,” Kain says. “This is not only from farmers, but from individual investors and investor groups.”

Source: Farmers National Co.

This article published in the July, 2011 edition of DAKOTA FARMER.

All rights reserved. Copyright Farm Progress Cos. 2011.