Agriculture commodity prices taking ag land values up with them

As agriculture commodity prices continued to rise entering 2021, farmland prices followed a similar path higher.

Randy Dickhut is the senior vice president of real estate options for the Farmers National Company. He says farmland prices are reaching levels we haven’t seen in several years.

“We flipped the calendar into January and saw that these reports of net farm income were quite a bit better than we onetime thought than earlier in 2020. There were extra CFAP payments and grain prices continued to escalate, and that put more optimism into farmers and a better financial situation with their balance sheets and cash flow. And that translated into some competitive bidding for farmland. We saw some auctions in the winter and early spring that were bumping around those highs of that 2013, early ’14.”

He says the run-up in farmland prices is a little stronger than most industry experts predicted.

“I think the buying interest that created the competitive bidding is maybe somewhat stronger than we thought coming out of COVID. There’s increased interest in owning land or real estate, and farmland is a part of that, so not only farmers but we’re getting some new interest from individuals who never owned farmland, so they’re in the market too, and people are also wondering about potential changes in tax policy, and so I think that’s creating some sales and buying interest too.”

Dickhut says the higher prices seem to be spread around most of rural America.

“The heart of the Corn Belt, the heart of the Midwest, the good cropland where we’ve seen the most change, and that can go from North Dakota into Kansas and east and west from Ohio into Nebraska. But it’s the good cropland that’s in the most demand because farmers buy 70 to 80 percent of the land that comes up for sale in many cases. Other areas where cropland is not quite as good or a little more risk like the Western Plains, those prices have increased; some as much but in other areas, not quite as much.”

He says there are a couple key factors that will decide how long the higher land prices will stick around.

“These good commodity prices that we’re seeing, it depends on if they stay, they’ll back off, but if we go back to three-dollar-something corn and eight- or nine-dollar soybeans, then that’s going to take some of the steam out of that land market, just because that changes the cash flow and the income perspective, whether it’s for the investor or the farmer. Interest rates, I think it’s natural that at some point they’re going to creep up. If you look at the longer-term interest rate markets, they’re not going wild. I think it’s going to be gradual, and I think some have a fear of inflation, but other things you read say this is coming out of COVID with some understandable increases in prices because of change from a slow market to heated markets, and will that be long-term or not?”