Farmland Prices Remain Strong, but the Future is Uncertain
Despite crop prices that are below the breakeven point for many farmers, quality farmland is holding up surprisingly well. That may provide an opportunity for farmers and investors to lock in their long-term gains, according to Tim Meyer, Steffes representative based in Iowa.
Landowners have benefited from strong yields in 2018, but this year’s crop size will be old news in a few months. Beyond that, nobody knows what the next year or two will bring. Weather, changing trade agreements, and numerous other factors will affect farm profits and land prices going forward.
“Farmland prices in many cases are well above what we would normally expect in terms of Corn Suitability Rating. We’ve even seen some record-breaking auctions in Iowa. These imbalances tend to correct themselves, so there may be more risk than reward in holding farmland over the next couple of years,” he said.
In short, it’s a good selling opportunity for farmers who might be planning to retire in the next few years, especially if the next generation doesn’t wish to continue farming. Investors may choose to liquidate rather than settle for lower cash rents based on recent farming losses.
Meanwhile, many landowners have substantial paper profits.
“We have people holding land that was inherited or bought decades ago at pennies on today’s dollar. The current environment makes it possible in some cases to ensure a family’s financial security for years to come,” said Meyer.
Demand remains solid in some areas, especially for quality land, Meyer said. “Lenders are still willing to lend to farmers who have sufficient equity, and there are some cash buyers around. Investors have been bidding more frequently, but most land is still going to operators,” he said.