The land market in Kansas and Oklahoma was slower than normal in the final quarter of 2017, according to the January report from Farmers National Company, one of the nation’s top agricultural land sales companies.
High quality cropland is still bringing a strong price, though, according to Paul Schadegg, an area sales manager for FNC.
“There is less land for sale than normal, and buyers continue to be more cautious in making purchase decisions,” he says. “Good quality land sells well in most areas, whereas lower quality crop or grassland struggles to find buyers. Overall, prices for good quality cropland have remained fairly steady during the past year in these two states, while lower quality land may have a harder time selling.”
On a national scale, the FNC report, based on data released by land grant universities and industry organizations, shows that the quantity of farm and ranch land for sale has been declining for the past several years.
Land prices increased strongly during the decade, up to and including 2013 when commodity prices were at historic highs, and have faded with the struggles in the farm economy.
Over the last four years, according to the report, values for crop and grazing land throughout the Midwest and Great Plans has seen a steady and measured decline. The amount of the drop-off varied by region, and good quality land tended to decline less while lower quality tracts saw weak demand and bigger drops in prices.
Randy Dickhut, senior vice president of real estate operations for FNC, said there are a number of positive factors supporting current land values.
“The industry has experienced a post-harvest bump in land prices in most grain producing areas,” Dickhut says. “With above average crop yields in most locations, farmer optimism has increased as has the bidding for quality crop land. The supply of land on the open market remains low while the number of buyers and demand is adequate for what is on the market at this time.”
Dickhut says low interest rates and farmer purchasing power are other factors providing price support. Ag land continues to hold the interest of individuals who want a long-term investment, and institutional funds have also stayed in the market.
The shortage of land on the market has pushed farmers with the means to compete into action to help grow their operation.
“We are also seeing a small increase in 1031 tax deferred exchange buyers as they move to trade into different land, or to diversify out of other real estate holdings and into cropland,” Dickhut said.
Red flags ahead
The picture is not all rosy, however.
Low grain prices that keep farm income levels depressed mean farmers have less cash flow to finance crop inputs and equipment repair or replacement. That means there’s less cash to bid on land.
“Individual and institutional investors are well aware of the lower grain prices and incomes,” he says. “The resulting reduction in the return on investment for land has kept some investors out of the land market during the past few years.”
Lenders are also becoming more careful about the amount of money they will lend to farmers for land purchases. That could mean fewer bidders and lower prices because farmers and ranchers are the predominant buyers of crop and grazing land.
“Cash flow and equity concerns of farmers could generate additional land for sale in the market as some producers liquidate either land or equipment to shore up their finances,” Dickhut says. “The magnitude of these additional land sales will probably be small and vary by region, but the potential for an increase in the supply of land on the market bears watching.”
There are also looming questions in world politics and economics.
The 2018 Farm Bill is bringing potential changes to programs that underpin farm stability during downturns. Trade agreements are in question, and the impact of the recent tax reform legislation is still uncertain.
“The next six months will determine the direction of land values,” Dickhut says. “Economic and financial factors will become more evident for producers and lenders. The factors and the outside influences will become better defined as we move through 2018.”