Hard to Tell When Farmland Prices Will Settle
An Iowa land sale worth more than $30,000 an acre recently made headlines and highlighted the strong demand for farmland.
Paul Shadegg is the senior vice president of real estate operations for Farmers National Company. While most land sales don’t hit that high price, he says farmland prices are still strong.
They are. We've continued to see a strong bunch of sellers and a strong pool of buyers. And when we see those record sales, we like to look into those a little deeper and see why that got driven so high. So, when we talk about recent sales in Iowa, those were legitimate sales driven by competition from adjoining farmer landowners. There are many times when we see a high value like that, and there are other factors to consider. It’s either development potential or, in the case of one that happened in Nebraska just recently, where there's some speculation that there might be some other uses coming down the road.
Shadegg says most of the land sales that reach higher prices get driven by farmer competition for the land.
When we analyze who are our buyers and who is involved in our land sales, we're still finding that over 80 percent of those are operating farmer-buyers. There are some small instances where we see investment groups coming in and being aggressive, but typically, the investor buyers are not emotional. There's nothing to drive them to a high level. They're going to bid up to a certain point and then stop. So, when we see these high values, they're usually based on a little emotion.
It’s hard to say for sure whether land prices will drop at all in 2023. He says most industry experts thought land prices would settle a bit in 2022.
We are cautious about where this land market is going to go because we thought a year ago that we'd probably see some settling, and that didn't happen. With commodity markets where they're at today, and the other factors involved that are positive, we plan to see those land values remain strong, although I think we're gonna see less and less of these record values, and interest rates are gonna play a big part of that, and inflation is going to play a big part of that.
He says the biggest driver of high farmland prices is an obvious one…tape
Commodity markets are the main driver in land markets. However, when we see other factors that come into play like the opportunity to buy and the opportunity to sell, which is supply-demand, that also is a contributing factor.
Read more about the record-breaking sale here.