A brief look at what's in store for the land market
In 2020, the agricultural land market came into the new year with a glimmer of optimism, gaining some momentum coming off a difficult year in many sectors. Trade deals were coming into place and commodity prices hinted at getting better. But, all of this was horribly disrupted when the treacherous COVID-19 slammed into people's lives, impacting them on most every level as a worldwide economy came to a standstill.
As a result of COVID-19's severe impact, a sudden hiatus ensued in the land market as activities by buyers and sellers slowed to a crawl.
In coming months, opposing factors will be pushing and pulling land values to decide what's in store for the land market.
Randy Dickhut, senior vice president of real estate operations, for Farmers National Company has been located in the Omaha, Nebraska office for 14 years. His background includes farming for 23 years after graduating from college and it was then he decided to join Farmers National Company when he desired a new and refreshing challenge.
Dickhut commented specifically on the before and after effects of COVID-19 as it took hold of U.S. agricultural land and agricultural values.
“The market for good cropland was stable to slightly stronger in many areas as interest rates remained low and demand was fairly strong for the low supply of land for sale," Dickhut said. "Recreational land had good demand as the general economy and the overall wealth of individuals was strong.”
But, once the recent pandemic reared its ugly head, schools quickly closed, as fluid milk consumption dried up and affected their number one customer/consumer. Restaurant closings and farmer's markets were a catastrophe all its own which impacted dairy but especially beef sales as their prime marketing channel froze-up overnight. The shutdown of numerous meat processing facilities severely impacted consumers, backtracking all the way to farms and ranches. Corn producers stood by to see the bottom drop out of ethanol usage because of stay-at-home rules for family households as well as for out of work employees. More simply said: if there's no traffic for work or travel, there's far less cars on the road, if any, and gas is not nearly as necessary.
Although Farmers National Company land auctions continued during March and April with social distancing in place, public auctions became stay-in-your-pick-up truck in the parking lot live auctions, bid sales or online auctions.
Real Estate Activities
Despite an industry-wide slowdown, Dickhut said real estate sales activity at Famers National Company was strong during the first seven months--with sales volume up 6-8%--from the company's fiscal year (Sept 30) going forward throughout the pandemic that began in March 2020 until the current time.
Sale outcomes regional
Sale outcomes varied by region and property. The land market became more cautious in the areas with dairy livestock and ethanol as these industries endured mounting bad news. In other areas, land sale prices were stable as demand for good quality land was more than adequate for the amount that did come up for sale.
"For example, in Wisconsin there was already stress on dairy farmers and it was compounded this year by the pandemic. Some dairy farmers are retiring, selling out and selling land," Dickhut said. "But, in other areas, land values are stable due to the demand for good quality farm land. Specifically, in Texas, there's a wide demand base for good ag land by investors. Also, in the corn belt there's more than adequate ag land for the amount that came up for sale."
Dickhut pointed out various factors impacting land values are pulling in opposite directions. However, positive influences include a continued low supply of good land for sale and historically low interest rates that vary by areas. "Investing in ag land provides a safe haven for current times, a long-term hedge, the means to invest in sustainability of the food supply or in recreational land use," he said.
Stock vs land
Ag land Investments are secure and often about a 40-year time frame, Dickhut explained. "Land is equivalent to the stock market, but If it's a choice between the two---meaning the stock market or land--- stocks fluctuate more whereas land values have a slow depreciation and provide a steady income." He added another alternative to consider is the average land buyer may invest in recreational land for hunting, camping, and fishing on his own land. "Farmers will remain buyers of land if they have the financial standing or means to do so."
Since COVID-19, Dickhut said there's more interest in all aspects of the food supply all the way from growing food, such as beef or crops, to the actual delivery of food.
"Sellers and buyers continue to actively call Farmers National Company agents as real estate business for the company continues during this uncertain period," Dickhut said.
Challenges that can put pressure on land values include the overriding potential for depressed farm incomes and the further decline of working capital for producers.
There are still many questions to be answered in future months: Will lower farm incomes overcome the low interest environment to put pressure on farmland values? Will farm finances be helped enough by the additional infusion of federal cash payments to producers to maintain financial stability? Will there be more land come onto the market due to financial pressures that could tip the supply and demand equation?
Dickhut said it's too soon to accurately answer what's next for the land market. "Federal cash payments will help. Farm programs were adhoc payments but now it's Covid payments," he said.
Agricultural land will continue to be bought and sold. "There's good crop land available and it's steady although not on the market as much as lower quality crop land. Right now, a good farm mostly sells well."
Land passing to the next generation is a constant that remains to play no matter what decision made by inheritors of land, producers, lenders, legislators and investors will come together over the coming months to provide the answer as to what' next for land values.
But, times are still uncertain.