Sudden Slowdown? Farmland Expert Sees Fewer Buyers, More No Sales And a Plateau in Prices
The rapid run-up in land values caused farmland values to hit historic levels over the past two years. The dynamics are starting to shift, and as input prices and interest rates climb, while commodity prices appear to be in a free-fall, an increasing number of bankers and land appraisers warn farmland values could be set to plateau.
The latest Rural Mainstreet Index (RMI) from Creighton University bankers estimate farmland prices in their area rose 4.3% over the past year, but the momentum stops there. The same bankers expect farmland prices in their area to remain stagnant, forecasting 0% growth, over the next 12 months.
Under Pressure?
Jim Rotherich is an Iowa land appraiser, and he continues to track land auction data across the state. While 2023 started out strong, he's seen a noticeable shift in the past two months.
“The lower quality land is getting hit the hardest,” says Rothermich of Iowa Appraisal. "In April and May, we're starting to see some softening on lower quality farms. And as a matter of fact, at auction, we're seeing an uptick and no sales and it's all lower quality farms."
More "No Sales" at Auction
The biggest surprise in the change in land purchasing trends may be the number of auctions that resulted in a "no sale," which means bids don't meet the reserve set by the seller.
“Auction volume is low during planting season but there is an increase in ‘No Sale’ at auction,” says Rothermich. “There are already five 5 this month in Iowa, and the average is zero to three in a month.”
Read More: Nebraska Farmland Values Jump 14% in 2023 — Up 30% in Two Years
Rothermich is even forecasting a 10% correction in land values over the next 12 months with current economics at play.
“Per my auction date, land market conditions in 2023 have been flat, but strong,” says Rothermich. “Over the past two months, the number of land sales bringing at least $20,000 per acre sales has slowed considerably, and I expect this trend to continue.”
Fewer High-Priced Sales
His expectation for the slowing of high-dollar land sales is based on the current data. He says when looking at the data from Measuring Jan to mid-May, the moderation of sales over $20,000 per acre is staggering year over year:
- In 2022: 19 farms sold $20,000/acre and above during those months
- In 2023: 1 farms sold $20,000/acre and above
- 8 of those sales occurred from Jan to March
What's Causing the Sudden Slowdown?
Rothermich says there are three leading factors causing the slowdown in the land market, and the rise in interest rates isn’t the leading reason.
“Per my realtor friends, higher input costs are a bigger factor than higher interest rates,” he says. “The second factor is lower grain prices and the perception they will be going lower. Interest rates are in 3rd place.”
Iowa isn't the only state seeing a slowdown. This past weekend in Vernon County, Mo., a 314 acre parcel of ground sold at auction for $4,950 per acre. The price was below what many in the area thought it would bring. Just five months ago, two large pieces of farmland in the northwest portion of the county brought $7,500 per acre.
Rothermich says no matter where you go, the number of farmland buyers is shrinking.
"A year ago, the buyer pool was huge," he says. "There were buyers coming out of the woodwork wanting to buy land and that included people from Wall Street wanting to get into the land space, and that's not there now. Right now, the buyer pool is down to the local farmers. There are some investors still out here wanting to buy land, but nothing like what it was those 1031 investors. They were a big part of the market a year ago. That's not the case right now."
Rothermich says the forecast for farmland values could change if cash reserves disappear, but he warns the buyer pool also shrunk considerably, a trend he will continue to watch.
Read More: Will Farmland Prices Finally Cool?
