Strong farmland values to continue into 2023

The land market momentum that began in late 2021 accelerated into 2022 and was driven by competition for high quality cropland, resulting in record sales and overall increases in land values across the country, according to Farmers National Company.

In most cases, landowners selling property experienced values never-before-seen for their farmland. The final results at these auctions set records in several states and have increased year-to-year values between 20% to 34% across Corn Belt states, according to the most recent report from the Kansas City Federal Reserve.

Farmers National Company set a new record sales volume of $766 million in 2022, exceeding the previous record in 2021 of $750 million. The majority of these sales came through competitive auction methods (76%) with increases in both total transactions and acres sold.

"What we are seeing is a true supply/demand scenario. There are simply more buyers willing to bid on the limited amount of land coming to the market. Current commodity markets and strong cash rents provide buyers with the necessary returns to meet their investment criteria while giving them the opportunity to expand operations or add land to their investment portfolio," says Paul Schadegg, senior vice president of real estate operations for Farmers National Company. "Our anticipation is that these values will remain strong coming into the new year with continued strength in the ag economy although we may see less and less of the record sales."

Who are the land buyers?

Farmers National Company reports seeing the traditional local farmer-operator as the successful buyer of farmland 75% of the time.

"With that being said, land investors are certainly part of the equation, as they have been active bidders at most sales to a point that has set the floor on values. While the investor may not always be the buyer of land, they are part of the competition driving the values higher," says Schadegg. "We also expect this trend to continue as many investors see the long-term value of farmland, the opportunity to diversify investments, and the value of land as a hedge against rising inflation."

What factors will continue to drive the land market or slow its growth?

"Commodity markets will continue to be the main driver in land value. When coupled with the supply/demand scenario, the outlook for continued strong land values remains strong moving into 2023. However, we are cautious as interest rates continue to rise and inflation becomes a large factor in cropping inputs. These factors have the impact to decrease net farm income, erode operator equity, and subsequently pressure farmland value," Schadegg explains. "So we sit at a somewhat precarious point in time where opportunity exists for both land sellers and buyers, but is dependent on the continued strength of the agriculture economy to stabilize or grow."

Farmers National Company also analyzes land sales and trends by region. The following are updates from the company's sales managers in each region.

East Central Region: North and West-Central Illinois

Linda Brier reports that the fall of 2022 proved to be just as busy as the fall of 2021 for land auctions, if not busier. "We had more auctions in this area, as well as private treaty sales," Brier says.

Land values were up as much as 17% in some areas for the farms with Class A soils.

"While we still anticipate auctions being used to sell land in 2023, this area may see more traditional private treaty sales than it has in the past two years," she adds.

East Region: Indiana, Ohio, Michigan, Kentucky

Land prices across the eastern Corn Belt have remained at historically high levels throughout 2022 and the trend has continued through the post-harvest fall selling season.

According to Jay VanGordon, top end selling prices for highly productive land with a large percentage of tillable acres remains strong across all states. Quality remains the No. 1 factor in potential selling price in all states within this region along with competition for land in any given local market.

"Despite higher crop input prices over the past 12 months and rising interest rates, continued strength in the corn and soybean markets has driven profitability in 2022 and as a result, kept land sale values at higher levels," VanGordon said. "Looking forward into 2023, we are seeing a smaller amount of land for sale in the east for the first quarter of 2023 as many landowners who have been considering selling or were motivated to sell by high prices have done so. We are also seeing some softening of farms with medium quality soils and lower tillable percentages as well."

Southern Region: Texas and Oklahoma

In Texas and Oklahoma, the demand for quality irrigated land has remained steady through the fall months for irrigated land with quality water production. The irrigation water production is the main factor for value in the area, notes Tyler Ambrose.

"The demand for dryland and pasture became stale with little to no increase in value for these land classes. The ongoing drought in Oklahoma and Texas slowed demand in late summer and into the fall months. In the recent weeks, we have seen an increase in interest for all land classes with potential sales being favorable into the coming months," says Ambrose. "With a lack of inventory on the market, buyer interest will increase and could push sales. However, market values do not appear to be increasing."

South Central Region: Kansas and Missouri

The south-central region held a number of strong land auctions throughout Kansas and western Missouri during the late fall and early winter.

"Across these states, we've seen high participation in our crowds and online bidding with new market highs being established," says Steve Morgan. "Over 8,500 acres traded hands through simulcast land auctions in the final months of 2022. Sales continued to show high demand for good to excellent cropland and strong demand for hunting properties. We've seen another 10% increase in quality dry cropland across Kansas and Missouri since mid-year numbers. Irrigated land continues to have a very strong values in the marketplace, when it comes available."

Investors are participating, but many of the farms are still being purchased by local producers.

Western Region: Western Nebraska and Colorado

Farmland values in western Nebraska and northeast Colorado remain strong for high quality, productive cropland.

"We are still experiencing near all-time highs for quality irrigated and dry land farms. Continued drought and economic pressure are causing less desirable tracts of land to see some discount from the highs experienced in 2021 and most of 2022," says Cole Nickerson.

Land inventory could be a supporting factor for strength of sales in the area, Nickerson adds. Lower numbers of farms are for sale now compared to the previous two years.

"Much like other markets, farmland values in western Nebraska and Colorado can be classified as strong but volatile as we look into 2023," says Nickerson.

West Central Region: Eastern Nebraska and Western Iowa

There have been outstanding prices for high quality ag land in eastern Nebraska and western Iowa.

Farmers and investors with cash and/or 1031 money available are the biggest drivers in the market and the reason why Chanda Scheuring foresees prices staying strong into the new year.

Central Region: Iowa and Southern Minnesota

According to Tom Schutter, the north-central region experienced another strong quarter to round out 2022.

"While the volume was down slightly from a year ago, we continued to see strong prices and record sales in many areas," says Schutter. "The latest Iowa State University Land Values Survey showed average land in Iowa increasing 17% over the past 12 months. Our sales coincide with those estimates, with much of the gains coming the first three quarters of the year."

Looking ahead, Schutter anticipate the higher interest rates and input prices to eventually soften up demand.

"But before we see a drop in value, we will have to burn through a couple years worth of liquidity, which may take more time than originally anticipated," Schutter adds. "All in all, we continue holding prices up near record highs while continuing to see a strong demand to own farmland in Iowa and southern Minnesota."

Northern Regions: Dakotas and Northern Minnesota

In 2022, the northern territory, which consists of the Dakotas and northern Minnesota, witnessed record farmland prices. A 25% increase over 2021 was the average common denominator, notes Brian Mohr.

"The highest prices were achieved for farmland within 10 miles of a major city with a $15,000-per-acre sale recorded east of Sioux Falls. And this is for non-development land, as commercial prices were off the charts," Mohr says. "The majority of the rest of the top sales were seen in the narrow band along and east of Interstate 29. We anticipate the strong prices to continue into early 2023, or until we see a drop in commodity prices."