Will there ever be a better time to sell farmland? Until this market is in our rearview mirror no one really knows. But it's hard to argue with today's prices.
In Indiana, Pat Karst says strong commodity prices and lackluster alternatives for investors have kept the farmland market hot. He says about two-thirds of the buyers he sees are farmers; the rest are investors.
"Investors still see farmland as a good, solid investment," says this vice president of Halderman Real Estate Services out of Wabash. "Farmers see the strong earnings potential associated with the land. So there's a lot of interest and there's a good supply."
Strong land prices, coupled with concerns that capital gains rates might increase in the near future, have been a factor for some sellers of late.
"In some cases it's been sort of the last straw, pushing people to go ahead and sell," says Karst. "They know what the capital gains rates are now, and prices are up. I believe that's made some land available for sale we might not have seen otherwise."
Depending on where you're buying in Indiana, good row-crop land can range from $4,500 to $8,200 an acre, says Karst. Recreational land has continued to be a strong draw too, despite the state of the general economy.
"The fact that the recreational land market has stayed so strong has been a little surprising," says Karst. "But there is still very good demand for hunting and recreational land here, and I don't see that changing for now."
As for whether land prices will hold or even increase over the next year, Karst believes the answer lies in commodity prices. "If you can tell me what commodity prices will do, I can tell you where land prices are going."
Wisconsin
Cropland average per acre: $3,810
Cash rent per acre: $85
Farmland prices have continued to climb in Wisconsin, says David Joos, an appraiser with Badgerland Financial out of Janesville. He works primarily in the southeast area of the state, where values for good farmland are running anywhere from $5,000 to $7,000 per acre.
"We've seen an 8 to 12% increase in land prices, with commodity prices having a definite influence on land-buying decisions," Joos explains.
Most of the buyers Joos sees in his area are farmers adding to their land holdings. Often the sales are private.
"What's typical in this area is for a seller to reach out to someone, like an attorney, who will act as an agent. They will contact several farmers in the area and solicit bids."
The trend among buyers is to use financing; there are few cash deals right now. Where land prices will go is anybody's guess, but Joos says he believes there's sufficient strength in the market to maintain values.
"I believe with today's commodity prices, there's enough strength to hold land prices where they are," he explains. "There could be a price squeeze due to substantially higher input costs. Where that takes the market is critical, but at this point predicting the level of value in the future is speculative."
Virginia
Cropland average per acre: $6,300
Cash rent per acre: $45
Farm real estate in Virginia is a hybrid that doesn't tend to follow the rules being set across the rest of the country.
Benjamin Harman, an appraiser with Colonial Farm Credit out of Mechanicsville, says they are not seeing the scenarios typical of the Midwest where land prices are hitting record highs. Instead, he explains, "we have a steadier, flat market here. And that has been the case for the last two years."
The major reason, he says, has been the residential market, which has been central to all of Virginia's land market. Harman explains what drove land price increases in Virginia for a number of years was the prospect of developing property, either for the residential or the recreational land market. The turnaround in those areas has put a freeze on the land market across the board.
"We just don't have a purely ag market as defined in other parts of the U.S. We do have row-crop land, but that value has been driven by non-ag investors for quite a while," Harman says.
Investors are still in the land market, but they have changed to long-term investors versus more speculative buyers. An oversupply in the residential market will continue to be a negative on ag land, says Harman. And while he doesn't expect decreases in land prices, there will likely continue to be a flattening.
As for prices, Harman says reports of $6,000 an acre tend to be for areas close to cities. In the more remote areas where pure farmland is available, prices are in the neighborhood of $3,000 to $3,500 an acre.
Land prices and cash rents not attributed to a source are from USDA's most recent summary.