The price of farmland in recent years has been quite the topic of conversation in rural America after sizable jumps in value. However, the recent rise in prices may be starting to slow in parts of farm country.
While demand is still strong for the highest-quality farmland, prices appear to have plateaued for lesser-quality land.
“Resilient” is how Paul Shadegg, senior vice president of real estate options for Farmers National Company in Omaha, describes the current market. It faces a lot of headwinds.
“Even with declining commodity prices, current interest rates and the concerns the Federal Reserve has with agricultural profitability, we’re still seeing some strong land values,” he said. “With all that said, we are not seeing the increases we’ve had during the past couple of years.”
Shadegg said values are starting to “flatten,” and certain land classes have dropped off from a value standpoint driven by a lack of interest.
“But the high-quality farms are still selling well,” he said.
They’re holding value rather than increasing, he said, unless in situations where neighbors are competing for the same farm and driving up prices. Still, it’s nothing like the skyrocketing prices the industry has seen.
Joel Westra Jr., of Westra Auctions in Centerville, South Dakota, has noticed things beginning to slow down in their auctions. Westra agrees that a top appears to be forming in the bidding for more marginal farmland.
“If you have a piece that’s average or even a little below, the interest has definitely waned on that,” Westra said. “I’d say there is a bit of a discounted rate because of lower interest.
Having sold land from Sioux County, Iowa, through southeastern South Dakota, he’s noticed that a good piecing of land will sometimes go for a premium. A good 80-acre field might be worth $13,000, for example, but it will sell for closer to $14,000 because it’s smaller and more affordable.
Given the headwinds of falling commodity prices and high interest rates, Shadegg is surprised at how well land is holding its value. He’s been through a lot of cycles during a 40-year career and see a lot of ups and downs. In times like this, he said he’s expect a more definitive adjustment in the market – maybe even seeing it “coming to a screeching halt.”
Nebraska ag land values are 5% higher than a year ago. The 2024 University of Nebraska-Lincoln’s Farm Real Estate Market Survey’s preliminary report says the market value of ag land in Nebraska rose to an average of $4,015 per acre. It’s the third consecutive year of increases in the market value of Nebraska’s ag land.
The highest land values included east central Nebraska farmland, up 4% to an average of $9,730 an acre, while northeast Nebraska farmland rose 6% to $8,540 per acre.
Jim Jansen, a University of Nebraska agricultural economist, says many farmers acquired tangible assets like land, machinery and equipment to hedge against inflation and rising prices. Smart financial decisions may be the reason the market hasn’t completely cooled off yet.
“The way that people in agriculture have operated during the past 25 years may be a good reason the land market hasn’t completely slowed,” Shadegg said. “They either went through or knew someone who went through tough times in the 70s and 80s and made smarter choices today.”
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While there are still some farmers with cash ready to be deployed at the right time, he said he’s talked to some recently who are waiting for the right opportunity to buy more land.
In 2023, South Dakota’s statewide average for non-irrigated land values increased roughly 13%. The statewide average price of farmland reached $5,458 per acre, up from $4,835 in 2022. The highest average land value was in east central South Dakota, where land averaged $8,648 an acre in 2023.
According to the National Agricultural Statistics Service (NASS), Minnesota’s farm real estate value averaged $6,600 per acre in 2023. That was 7% or $450 an acre higher than the 2022 average. Cropland rent averaged $6,820 per acre, while pasture was $2,100 per acre on average, $90 above the previous year.
Cash rent paid to landlords for Minnesota cropland averaged $198 per acre. NASS said irrigated cropland rent was the most expensive at $215 per acre, $15 higher than 2022. Non-irrigated cropland wasn’t far behind at an average of $198 per acre, $13 above the prior year.
While investors are taking a little more of an interest in farmland, Shadegg said over two-thirds of the available land is still getting sold to the local farmer-operator.
“Investors and funds are definitely in the market,” he said. “They just haven’t been the final purchaser on multiple occasions. But the possibility is there.”
Looking back over the decades at what has happened and could happen further into 2024, he knows investors are “sitting back” and waiting for the right opportunity. They want land to hit the right price to meet their return on investment. As some farm operators may want to exit the business for a variety of reasons, it may be their chance to acquire some land.
And that chance may be coming. Westra says, investors are now showing up at his company’s auctions. They’ve seen a combination of farmers and investors at many of their recent auctions.
“We see that a lot in our area near Sioux Falls,” Westra said. “There’s a lot of money there, and it does trickle out into the surrounding counties.”
Interest from investors usually stretches out three or four counties from the Sioux Falls metro areas. In other places like Brookings, Mitchell and Wagner, South Dakota, it tends to be more of a local focus from farmers, he said.
That doesn’t mean there’s no competition.
Westra has seen how competitive farmers can get with good land at stake. His company sells with Zomer Auction in Rock Valley, Iowa, where a few weeks ago, they sold a farm that brought $29,600 an acre.
“That’s crazy,” he said.
It wasn’t a one-off fluke. A week later, more land by Sioux Center, Iowa, brought around $26,500 an acre, Westra added, and they saw $18,700 for another three pieces of land. Even a marginal tract brought in $15,000 range, he said.
With the average age of farmers growing ever older, investors may see opportunities to step in and buy land when operators retire.
“I’m not sure it’ll be a landslide of investors coming in all at once, but they are out there and waiting for the right opportunity,” he said.
While prices are beginning to “plateau,” Shadegg says there’s still a possibility of high-quality land heading higher in price. The best quality land will likely continue on an upswing. Even the lesser-quality acres aren’t going to drop considerably and will instead settle in at a “new normal.”
Chad started out as a radio broadcaster for 22 years, then made the switch to full-time freelance journalism. He grew up working on the family dairy farm, and enjoys staying busy with his wife and six children. Reach him at editorial@midwestmessenger.com.