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.