In 2022, farmland values reached new heights, and experts say the climb isn’t over yet, but the end may be in sight.
Farmers National Co. released its biannual “Regional Land Value Report” in January. The company found 2022 brought record sales and overall increases in land values across the country.
“Moving into 2023, our anticipation is that values are going to remain strong because of where the ag economy is today and the competition that still remains out there bidding on this land,” says Paul Schadegg, senior vice president of real estate operations for Farmers National.
Jackson Takach, chief economist at Farmer Mac, adds that interest rates up to this point are not rising faster than values, which encourages investment. “What do farmers want to invest in?” he asks. “The thing they know and love, which is land.”
However, both agree the surge in land values won’t last forever.
Schadegg says as interest rates rise and inflation drives up the cost of inputs, pressure also rises on farmland values.
“My caution is that at some point we are going to find out where the tipping point is on interest rates and inflation,” says Schadegg. “All we would need to see is a slowdown in the commodity market.”
In fact, Takach says that when land value appreciation slows or even reverses, it is almost always because of a negative change in the ag economy. However, he doesn’t expect this until 2024.
Farmers National Co. also looked at who was making land purchases in 2022 and found 75% of final sales went to farmers vs. land investors.
Schadegg says farmland appeals to outside investors as a way to diversify an investment portfolio.
“Activity in the land market brought attention to the potential for investment into land, so that brought these land investors in as part of the buyer pool,” Schadegg says, “and they are helping increase the number of buyers who are out there.” He says by increasing demand, investors are supporting farmland values, but often it is a farmer who is willing to pay the premium price for the land.
“[The investors] have no emotional attachment to it,” he says. “They are strictly looking at ROI. So, they know they can pay X amount, and they will bid up to that. Beyond that then it becomes emotional for maybe a local farmer who has been waiting to buy this piece of ground for years.”