Rural land values have continued their upward march and it remains a strong market for sellers, according to a longtime expert who expects the trend to continue in the short run.
Paul Schadegg, senior vice president of real estate operations at Farmers National Company, Omaha, Nebraska, said even with past increases in mortgage rates a strong commodity market for grains and livestock has solidified values.
“When we look at what is happening today, we are continuing to see record prices,” Schadegg said. “That does not happen by accident. It takes more than one bidder.”
Ninety percent of the bidders are what he classifies as operating landowners who are being pushed by local and outside investors, he said. There are still long-term holders in real estate, whether expanding an operation or investors for the long term. The farmers and ranchers who are purchasing the land are well capitalized and often are looking to add to their operations because they have the equipment and machinery in place.
Having land with close proximity to other tracts has been a longtime practice buyers use in their thought process, he said.
“With the equipment they are running today to make it cost effective they need to stretch the dollars. They can leverage the efficiency of the equipment by spreading out the costs over more acres,” Schadegg said. “The commodity markets are still at higher levels and guys are operating efficiently. They have cash in their pocket and they are investing in their operation.”
Overall, he thinks the market is getting closer to a plateau as world events, politics and the economy will all play a part in the long-term picture.
According to bankers surveyed by Ernie Goss, the McAllister Chair and Professor of Economics at Creighton University in Omaha, Nebraska, they indicated similar findings when he asked if they expected farmland values in their area to plateau or even decline in the next 12 months. Nearly 61% believe that over the next 12 months farmland values will plateau. About 17% believed that they would even continue to expand but at a slower pace. Nearly 22% believed that values would decline slightly. Only a handful believed the values would continue to have a rapid rise or experience a rapid full.
Goss also noted that most bankers have not started to ask for more upfront financial commitments for farm lands. Only about 13.5% were starting to do so. Goss regularly surveys bankers in rural communities in10 states.
“Right now it is stable and up,” Schadegg said. “If we continue to see pressure in the energy sector it will translate into higher fertilizer and other input costs, and coupled with continued interest rate increases it could eventually affect the land market.”
The lingering drought in the western Plains may eventually slow some regional markets but so far that has not occurred, he said. In western Kansas and eastern Colorado—where the drought has hit hard—recent sales continue to be strong, he said. It reminds Schadegg of a proven formula—high quality land is always in demand.
When land is less productive or has a drainage or other deficiency “that definitely causes buyers to pause and with less quality of land you will see the adjustments in the marketplace.”
Some of the more impressive values have been with parcels in the Missouri River corridor and predictably in Iowa and Illinois, he said.
“Iowa continues to be a strong seller. Some of the sales are records and some are continuing to stay above average trends. Illinois was really quiet for most of the past year but over the last couple of months they have picked up and gone very well. We are starting to see an increase in sales.
In Illinois, he has seen the values climb from $20,000 to $21,000 an acre. In Iowa he has seen consistent reports of $12,000 to $14,000 an acre and in one region it touched on the $18,000-an-acre range. Some approached $18,000-plus.
Along the Missouri River, near Platte City, in northwest Missouri, a recent tract brought $12,000 an acre.
Several major auctions are coming up in eastern Nebraska and he expects them to be top sellers. “We already know there is a lot of buyer interest.”
Pastureland
Ranch and pastures have seen strong sales, too, Schadegg said, but it is different from cropland.
“If we see a strong sale with grassland it is in an area where buyers were wanting to expand,” he said, but results have not been tracking as high percentage-wise as cropland because of the return on investment is not as high. A fairly strong livestock market and demand for hay have helped.
“Larger tracts of land are more in demand and draws the higher bids,” he said.
What to do
His advice to sellers is to meet with real estate agents and review their options and that is particularly true with longtime landowners.
“When we meet with those sellers we can say ‘you have an opportunity to capitalize on the market.’”
There may be a trade-off with capital gains taxes, he said. It may be an opportunity for a retiring farm family to retain the land as an investment and consider a cash rent arrangement with a tenant.
“When it comes to a buyer it is all about supply and demand,” Schadegg said. “You need to have your ducks in a row, be prepared and be willing to bid.”
From his perspective the strength of land prices and higher commodity prices makes him feel optimistic.
“It’s an exciting time in agriculture in general. The encouraging part is if agriculture can stay profitable it will be good for the next generation who wants to farm. We have a lot of opportunities in ag-related companies like ourselves and other industries involved in agriculture.”
Schadegg was recently appointed to his new position as he replaced Randy Dickhut, senior vice president of real estate operations, who retired on Sept. 30 after more than 20 years with the Omaha, Nebraska-based Farmers National Company.
Dickhut began his career with Farmers National Company in 2002 as a farm manager in west central Illinois. In 2006, he moved to Omaha when he was promoted to vice president of client relations and will complete his tenure with the company as the senior vice president of real estate operations. He was a member of the executive team and on the board of directors.
Schadegg has more than 20 years of real estate and farm management experience, including a successful track record in both real estate sales and business development. In his new role, Schadegg will lead Farmers National Company’s strategy for real estate and appraisal, as well as the hunting lease network.
Farmers National Company currently manages more than 5,000 farms and ranches in 29 states comprising over 2 million acres.
Dave Bergmeier can be reached at 620-227-1822 or [email protected].
