What Makes 2023 Land Sales Different Than 2022 or 2021?
On the heels of the September WASDE report, Davis Michaelson welcomed Doug Hensley from Hertz Real Estate on AgriTalk.
With yields and crop prices top of mind, Michaelson took the opportunity to ask Hensley: How much do crop prices actually impact the decision-making process of farmland buyers?
“Crop prices are one of the primary impacts when farmers are buying and/or selling land, but predominantly buying,” Hensley says. “The thing people often get caught up in is looking at any particular day in any particular week and saying, ‘Oh, this doesn't pencil out a profit for me in today’s market.’ But when you think back over the last nine to 12 months, there have been opportunities to forward contract and hedge the 2023 crop at pretty profitable levels, though maybe not as profitable as it was a year ago. It’s important to look at production over a period of years to tell a bigger story.”
With that in mind, historical data on a field ranks up there in importance when buying land. “Get a hold of the 10-year APH data,” Hensley encourages.
How 2023 Stacks Up
Three-quarters of the way through 2023, Hensley says it’s been a steady year and actually a bit busier than anticipated after the record pace of land sales in 2021 and 2022 because of record profitability.
From 2015 through 2020, he says there were folks interested in selling land, but they sat on it because of the weak market. When the market turned in 2021, and especially in 2022, he saw a lot of people hit the button to go to auction.
“When you have a strong market over a 24-to-30-month period, at some point, it's going to slow down,” Hensley says. “I thought that was going to happen in 2023, and it has slowed some, but not quite as much as I thought. In spite of lower grain prices and higher interest rates, we're still seeing the market hold itself together pretty well.”
The depth in the market, from a buyer's perspective, is not as great as it was a year ago, he says, except for top-quality farms, in terms of soil quality and drainage.
A year ago, when farmland went to auction, there might have been five or six buyers ready to line up and compete for it, Hensley says. Today, there’s still competition, but there might be two or three buyers who are really competing until the end.
When there are fewer buyers, land is less likely to sell for a record price. A year ago, almost every sale was a new record for the county or the area, but that hasn’t been the case across the Midwest this year.
“It was almost a powder keg last fall because of good yields and good prices. People were really flush,” Hensley says. “In today’s market, I think there’s still a ton of cash out there, but given a change in the economy, people are starting to be a little more protective of their liquidity.”
It’s not to say they won't bid and buy, he adds, because they will. On Sept. 12, Hertz Real Estate had almost a $21,000 per acre sale, and the same was true almost two weeks ago.
From his standpoint, it’s important to be discerning as to which farms make the most sense to take to auction versus which ones to offer privately to the market, and how to go about it.
“This is a more interesting time in the land business because you get to be a broker and you’re solving problems and helping people navigate through a shifting market.”
