Economic uncertainty had some farmland owners, mostly non-operators and absentee landowners, rushing to sell before 2012 came to an end. That was evident in the last three months of the year, according to Farmers National Company, the largest farmland and ranchland real estate firm in the United States. Overall for 2012, the company reports that its sales activity was up 40% over 2011.
"We anticipated another record year in 2012, but what we've seen has exceeded our expectations," says Derrick Volchoff, vice president of real estate operations at Farmers National Company. Projected changes in tax laws prompted many landowners who were planning to sell in the next two years to act before new rules were expected to take effect on January 1, 2013. Congress ended up extending the inheritance tax law similar to what was in effect during 2012.
This high level of farmland sales activity that occurred in 2012 is likely to lead to a short supply of available land offered for sale in 2013, according to Volchoff, which could drive land values even higher in 2013.
"Pure economics should dictate that values rise if the supply of available land tightens," says Volchoff. The fact that values have stayed strong over the past few years has prompted landowners to sell while the market remains positive. Several market forces such as economic uncertainty in Europe and China, as well as the widespread drought, have not negatively impacted land values to date.
How long will current boom in farmland values last? As long as corn and soybean prices stay strong
Buyers of land in the current market are farmers looking to expand their operations, says Volchoff. Non-operating landowners are driving the activity, as many sellers are looking to sell inherited or transferred land. High profitability from strong commodity prices in recent years has put many farmers in a strong cash position, reducing purchase risk as debt ratios have been held down. Very few investors are looking to sell their land at this point.
"Buyers of land feel they will still get returns on land well into 2013 as projections for continued profitability are strong," says Volchoff. "Farm operators feel very comfortable in their situations. They have significant cash and are investing it in their farming operations by buying land and equipment."
The future of the market, while unforeseen, is not risky, according to Volchoff. "The farmland market has not been highly leveraged, as residential housing markets were when prices skyrocketed. This farmland market today is not a speculative market and we do not foresee any type of abrupt downturn. People still see land as a safe, tangible investment and are willing to keep their money there over the long term."
Regional information on land values for different states is available at website
Farmers National Company, an employee-owned company, is the nation's leading agricultural real estate and farm and ranch management company. The company has sold over 3,500 farms and more than $2.0 billion of real estate during the last five years. Farmers National Company currently manages more than 4,700 farms in 24 states. Additional services provided by the company include auctions, appraisals, insurance, consultation services, oil and gas management, lake management and a national hunting lease program. For more information on land listings in your region, visit the Farmers National Company website at www.FarmersNational.com.
Number of land sales in Iowa, Missouri, Minnesota and South Dakota up 35% in 2012
Demand for quality land continues to be very strong in the north-central region including Iowa, Missouri, Minnesota and South Dakota, according to Sam Kain, area sales manager for Farmers National Company in Iowa and Minnesota. Auction numbers in this region were up in 2012, prompting sellers to net top sales prices.
"Farmers National Company completed more than 175 auctions in this region during 2012, which is up 35% over the prior year," says Kain. "Demand is still outpacing the number of properties available for sale, and the quality of land offered for sale is definitely king." The higher quality land is attracting very strong bids.
Despite higher cash rents and rising input costs narrowing farmer profits, the majority of buyers of farmland in the north-central region continue to be farmers. In Iowa, top quality land is selling at more than $12,500 per acre, Minnesota values are reaching $9,500 per acre, and values in eastern South Dakota have reached $8,000 plus in many areas.
Iowa farmland sells for $17,000 per acre at auction in central Iowa
On January 4 the sale of 375 acres of farmland near Nevada in central Iowa shows that confidence is still strong in the Iowa land market after the 'fiscal cliff" fiasco in Congress was averted. Congress, waiting until the last minute to act, reached an agreement with the Obama administration on January 1, avoiding significant tax increases and huge federal spending cuts that were to automatically go into effect. President Obama signed the legislation on January 3 and the new tax law is part of that "catch all" package.
The sale of the 375.26 acres north of Nevada in Story County to neighboring farmer Dale Swanson and his son Richard brought in $6.38 million to the Board of Pensions of the Annual Conference of the United Methodist Church, which had owned the land since 1978. "We were very pleased," said the Rev. Beverly Bell, spokeswoman for the conference. "This is the last parcel of land we have to sell and the time was right."
Dale Swanson acknowledged it was a very high price to pay for farm ground, but he considers the investment to be worthwhile. "This is very good land," said Swanson, who will farm it with his son. More than 150 farmers and others interested in the sale packed the Nevada Senior Citizens Center on the afternoon of January 4 to witness the bidding. The sale generated heavy interest, not only because of the land's high quality. People who attended the sale were also curious about any economic after-effects that may be lingering from the "fiscal cliff" deal, which extended the capital gains tax at 15% and the estate tax exemption at $5 million.
There is more confidence among potential buyers of land now since Congress has extended the tax laws
Farmland Realtors had reported a record rush of sales in the final few months and weeks of 2012 on fears that Congress might let the tax breaks lapse, possibly dampening the attractiveness of farmland as an investment. Had Congress not passed the bill, the estate tax exemption would have dropped to $1 million and the capital gains tax could have risen to as high as 23.8%. It will rise to 20% for families with income above $450,000 and individuals above $400,000.
Last October, Iowa broke its old record for highest farmland price with a $21,900 per acre sale in Sioux County. Sales of $15,000 or more have been common.
The sale of the land for $17,000 per acre at Nevada on January 4 was expected to attract strong bidding, considering the land has an excellent corn suitability rating of near 90. A rating above 70 generally indicates good quality land. "This is exceptionally good land," says Randy Hertz of Hertz Farm Management at Nevada, who attended the sale.