Interest in purchasing agricultural land has grown since a coronavirus pandemic-induced slowdown blanketed the land market last spring, according to Farmers National Co. Producers are feeling more financially secure as strong commodity prices arrived on top of large government payments in 2020. This is propelling farmers to bid more aggressively for additional land than has been the case during the past six years.
“Farmland sales prices are up 5% to 15% in the past six months with most of the increase coming since the first of the year,” says Randy Dickhut, senior vice president of real estate operations at Farmers National Co. “Competitive bidding among interested buyers is really pushing land prices right now.”
Individual investors, both first-time and experienced buyers, are stepping into the land market as they search for a safe, long-term real estate investment in a low interest rate environment. Investor buyers seldom outbid farmer buyers for a good farm unless they have 1031 tax-deferred exchange funds to spend in a short time.
Bidding And Listing Platforms
Currently, the demand for good farmland is outstripping the supply of farms for sale. During the previous few years, the number of farms for sale has been lower, but there remained enough demand in the farmland market to balance the lower supply, resulting in steady land prices.
Currently, the strong demand to own farmland is one of the main factors pushing prices higher.
“For the seller to get top dollar in the current land market, they have to ensure there is true competitive bidding,” Dickhut says. “Farmers National Co. and its agents employ the most comprehensive platform of competitive bidding systems available to get the best price for sellers, including public outcry auctions, a full array of online and simultaneous live auctions, various written bidding mechanisms, and other bidding or listing platforms.”
Consider Potential Taxes
Higher land values will bring more sellers into the market as estates, trusts, recent inheritors and family groups decide to sell the farm or ranch and capture the higher prices.
Also, uncertainty surrounding future tax policies will trigger a sale sooner than later for some. Landowners who are thinking of selling their farm are now factoring in both the higher proceeds they would get from the sale and what potential tax obligations might be due.
The land market will be balancing increased demand for good cropland against what might be an increasing supply of farms for sale. In a rising land market, it becomes more difficult to predict what a farm will sell for on any given day especially when there is demand from both farmers and investors, Dickhut says.
“The best way to sell cropland in the current market is to take it to auction or some form of competitive bidding that brings together the potential buyers and lets them push the price.”
Farmers National Co. contributed this article.
More Buyers Than Sellers
Buyers are actively pushing land prices in the Central and Southern Plains (Arkansas, Kansas, Nebraska, Oklahoma and Texas) as sales prices in some areas are nearing the highs of the past, according to Farmers National Co.
“We are seeing land prices up 10% to 12% for good cropland in the area,” says Paul Schadegg, area sales manager for the firm.
Prices for dryland farms in the Western Plains are strengthening, too, after a period of low demand.
“There is now more demand for average to lower quality land than there has been for a number of years,” he says.
The current agricultural land market has more buyers than sellers. The inventory of farms for sale is currently at a low point for all land brokers as buyers have been aggressively purchasing what has been listed for sale.
“The prospect for higher commodity prices drives the demand for good cropland in the region. It is making farmers even more bullish to buy farmland,” Schadegg says.
Competitive bidding among potential buyers is delivering the best sales prices to sellers in most areas.
“If you want top dollar in my area, take it to auction and let people bid,” Schadegg says. “Also, buyers are being more aggressive bidding on traditional private treaty listings.”
The expectation is for more farms and ranches to come up for sale as the year moves along due to the higher prices received and potential changes in tax policy.