Farmland values across the country climbed this year and hit record levels despite challenges like rising interest rates and extreme weather. That’s according to recently released data from the federal government.
The USDA’s annual land values study found farm real estate values increased 7.4 percent over the past year. And the Federal Reserve Banks of Chicago and Kansas City reported nine and seven percent increases respectively.
Eric Sarff is president of Murray Wise Associates, a farm real estate company that’s completed transactions in 43 states over its 25-year history. He shed some light on what his team has seen on the ground over the past year.
He says, “We’ve seen the demand continued to be strong for farmland. This last year really across all regions in the country prices have continued to remain strong even though we’re a little bit different environment now than we were a year ago with both higher interest rates and lower commodity prices. I think when interest rates started to go up, we thought we might see a little bit more of a pullback than we have. But I think really what caused demand to remain strong is that there’s a lot of cash buyers out there, so the interest rates don’t affect those buyers quite as much, and also there’s a lot of buyers that may have land already paid off or loans that are at a lower rate, so that gets spread across the entire portfolio, higher interest rates do not affect them quite as much as you might think. So, really just the continued demand for farmland remains strong.”
Sarff says the farmland market behaves differently than traditional real estate, which is prone to peaks and valleys that coincide with the economy. Sarff says, “In the Corn Belt-Midwest region, we kind of look at it typically as a good rule of thumb is seven percent appreciation year over year. But I think when you peel that back, it’s important to see that it’s really not a linear progression. What happens is you get into periods where you’re going to have softening or just flat pricing, then you get into periods like we’ve been in the last few years where you’re going to see significant increases, double digit year over year increases. So, it’s when you pull back from that and look at the bigger picture, that’s where you see where it’s leveled to possibly even negative for a year or two, then it goes into wild up swings, which is what we mean when we say plateaus and peaks.”
He explains what we can expect for the rest of 2023 and beyond.
Sarff, “What we’ve seen really so far in ‘23, and what I think we’ll see the rest of the year is continued strong demand, which tells me we’re still in somewhere in that in that peak stage. And just based off on what we’ve seen so far, you know, we work with a lot of institutional type investors, and there’s still a very large appetite out there for those kind of buyers and there’s still a lot of cash that’s out there looking to find a place to be in Ag, and I think if all that remains the case, I think we’re going to continue to see a lot of buyers flocking to farms and keeping prices where they are at.”
Regardless of which direction the market heads in the future, Sarff said it’s important for landowners to do their homework and stay informed about market movements. His company has started issuing monthly land reviews in Iowa and Illinois for that very reason.
Sarff says, “We started that here earlier this year and have had very good feedback so far. We kind of noticed that there was a demand for something that had really up to date timely data. We subscribed various services ourselves, and while there’s a lot of good data out there, what we’ve really found was lacking was really real time sales data delivered directly to your email inbox. And that’s why we created the MWA land report and started off here with central Illinois and North-central Iowa. which winds up with where our offices are located. but yeah, we definitely would like to expand that throughout both states and then in really more into the rest of the country. So that’s on tap, but for right now we’re going to keep collecting great data here and Illinois and Iowa and go from there.”
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Story courtesy of the NAFB News Service