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Minding Ag's Business: 2021 Farmland Outlook

Katie Micik Dehlinger
By  Katie Micik Dehlinger , Farm Business Editor
Farmland auctions posted some of the highest prices since 2012 last fall, and amid continued expectations for low supply on the market and growing demand, experts expect land prices to continue to firm up. (DTN file photo by Elaine Shein)

MOUNT JULIET, Tenn. (DTN) -- A harvest rally in the grain markets, assistance payments from the government and rock-bottom interest rates fueled better-than-expected farmland sales at auction last fall, with one national firm saying it had several sales at the highest prices since 2012.

"In specific instances, prices for good quality cropland in the heart of the Midwest are up hundreds to thousands of dollars per acre more than anticipated," said Randy Dickhut, senior vice president of real estate operations at Farmers National Company, in a press release.

The average sale price of quality farmland in Illinois was $11,200 per acre, 4% higher than last year, according to a survey of Farmers National Company agents. While Illinois sales topped the charts in price tag, several other Corn Belt states had even larger percentage increases. Indiana's average sale price increased nearly 8% from last year to $9,700 per acre, while Ohio sales were 7.5% higher than last year at $7,800. Iowa sales were 7% higher year-over-year at $10,400 per acre.

Farmland values have been a stable force amid the ag economy's gyrations in recent years. Dickhut said the market has been supported by historically low interest rates, a lower supply of land for sale and adequate demand for good cropland everywhere.

"Values for good cropland are strong right now with more farmers stepping up to buy, as well as a growing number of individual investors. Buying interest from farmers has increased as they anticipate a better income year in 2020 than once thought," Dickhut said.

Doug Hensley, president of real estate services at Hertz Farm Management, said farmers made up about 80% of the buyers at farmland auctions this fall. He told the DTN Ag Summit last month that about 15% of buyers are individual investors, many of whom are looking at farmland for the first time due to its stability after the stock market's tumultuous 2020.

"We've seen a lot of people who are looking at farms for a stable, anchor piece to their portfolio," he said.

Institutional investors, in the states where they are allowed to buy land, have purchased about 5% of the farms up for sale.

While quality cropland in the "I" states may be leading the pack in year-over-year increases, all segments of the land market are hot right now.

"In East Texas, our sales of timberland are increasing as sellers and buyers get more active. Ranchland prices in the state are strong as demand grows for that type of investment. Good Delta cropland continues to strengthen. Western Kansas dryland farms are selling at prices not seen for almost a decade," said Paul Schadegg, Farmers National Company sales manager for Nebraska, Kansas, Oklahoma, Texas and Arkansas, in a press release.

Hensley said the recreational land market has been counterintuitively strong.

"When the general economy is struggling, typically, so is the recreational market," he said, adding that recreational land is a luxury good just like condos and boats. "What's been a little different this year with recreational land is the desire to be far away from other people."

Dickhut agreed, adding that they're seeing more people looking for a rural acreage so they can have a place to go outside of the city or go hunting.

Dickhut expects the supply of farmland on the market to remain low in 2021 since it's really only inheritors, estates and non-operating landowners that are selling, although Hensley said the latter are reconsidering sales given the amount of volatility in other investment opportunities. He anticipates stronger farm finances, which will avoid the need for banks to force sales, as well as active demand by both farmers and investors.

The one unknown for 2021, Hensley said, is tax policy and whether Democrats will try to make changes to things like the Section 1031 exchange, capital gains and estate taxes.

"Looking ahead, if nothing unexpected happens to challenge the current land market, land prices will continue to firm up in 2021," Dickhut said.

Katie Dehlinger can be reached at Katie.Dehlinger@dtn.com

Follow her on Twitter @KatieD_DTN

Katie Dehlinger