EXPERTS REPORT FARM LAND MARKET IN TRANSITION
Feb. 12, 2014
Source: American Society of Farm Managers and Rural Appraisers news release
The farmland market begins 2014 in a much different situation than a year ago. The start of 2013 saw the market catching its breath following a dynamic surge in the wake of record corn and soybean prices in the Midwest and net farm incomes throughout the United States.
This year, farmland owners and operators are adjusting to lower commodity prices. The change in price outlook has brought a shift in market dynamics as well. The result is a farmland market that is in transition. The following are observations from farmland professionals in the areas of valuation, sales and acquisitions.
Merrill E. Swanson, ARA, Valbridge Property Advisors / Dugger, Canaday, Grafe, Inc., San Antonio, Texas believes the Texas rural land markets are led by a strong Texas economy. Texas is a business friendly state with high consumer confidence. The Texas economy recovered probably sooner after the Great Recession than most states with a strong energy sector led by the discovery of the Eagle Ford Shale in South Texas.
The booming energy industry in Texas is anticipated to continue. The various shale plays including Eagle Ford and others are injecting billions of dollars into the Texas economy. Most Texas cities are thriving because of the energy business. Many energy related investors are buyers of farms and ranches. Rural land prices in most areas of Texas are on the increase. Conversely, pricing of rural land heavily impacted by oil and gas production in the shale or other oil and gas plays may not be measurably increasing.
Steve Runyan, ARA, Runyan Appraisal Service, Bakersfield, California indicates that land values have generally increased at least 50% in the last five years in areas that do not have urban expansion pressure. There have been similar increases in value for most permanent crops. The exception to this is the intermountain valleys where land values have been stable for several years. Land values in areas affected by urban expansion pressure have fluctuated because of the housing market, but are generally increasing in the last two years.
Land values in the Imperial Valley have steadily increased over the last five years with an increase in the range of 40%. Land values in the Coachella Valley declined in the range of 70% between 2007 and 2010 as a result of the decline in the California housing market. The market appeared to stabilize from 2010 through 2013. There were nearly 2,000 acres put on the market in 2013 and prices softened somewhat. By the end of 2013 prices had started to increase again.
The overall situation in California is limited property for sale and an abundance of buyers. The majority of the San Joaquin Valley is expecting to receive zero water allocation from irrigation districts in 2014. This should have a detrimental effect on land values, but sales most likely will just cease for a period of time.
Kirk Manker, Farm Credit Services of America, Omaha, Nebraska leads the FCS appraisal team consisting of nearly 70 full time appraisers across a four state area. Their recent update of Benchmark Land Values indicates demand for Midwest farmland remains strong while prices show signs of leveling off. Land prices and demand continue to be strong across the four-state area of Iowa, Nebraska, South Dakota, and Wyoming, but the latest data aggregated by Farm Credit Services of America (FCSAmerica) suggest the market for crop production farmland could be leveling off or in some cases softening.
The semi-annual update of the Benchmark Land Values in which the lender tracts the values of 65 farms based on an analysis of more than 3,500 agricultural real estate sales transactions in all four states in 2013 indicate the following trends:
Average Change in Benchmark Farmland Values as of January 1, 2014
State; Six Month; One Year; Five Year; Ten Year
Iowa (21); -2.8%; 3.4%; 98.3%; 282.1%
Nebraska (19); 0.7%; 8.0%; 143.2%; 325.9%
South Dakota (23); 7.2%; 17.6%; 109.3%; 332.7%
Wyoming (2); 3.4%; 6.9%; -3.8%; 75.2%
After years of a steady rise led by lower than average U.S. yields, strong domestic and international demand for commodities, low interest rates and solid profit margins, the rate of price increase is leveling off for farmland in some areas.
Land prices and demand for farmland continue to be strong in the four-state area, but buyer sentiment could be adjusting with decreased commodity prices that will reduce record profit margins experienced the past few years.
Allan Worrell, AFM, ALC, Worrell-Leka Land Services, Jacksonville, Illinois believes the land market in Western Illinois has become erratic. During the first half of 2013 the market was universally strong with excellent soils selling for $15,000 to $16,000 per acre. Once the price of corn/soybeans began to deteriorate we saw some softening, which has carried into early 2014.
The excellent soils are still in strong demand with a limited supply available. The market appears to have retreated on the good and fair soils. In some cases we see sales that appear to be off 10% or more.
There is little doubt that the driving force to unstable prices has been the decline in commodity prices. This uncertainty has resulted in buyers becoming more conservative in their approach to buying land.
Additional rural land market information may be referenced at:
1. Texas Real Estate Center website at http://recenter.tamu.edu/data/rland/
2. California Land Trends at http://www.calasfmra.com/trends.php
3. Illinois Land Trends www.ispfmra.org
4. Iowa State University Land Value Survey http://www.extension.iastate.edu/topic/landvalue
5. Federal Reserve Bank of Kansas City http://www.kc.frb.org/