Land Market Remains On Edge
One of the hottest topics circulating around the agriculture industry the past few years has been the land market. In 2019, the topic is open for more speculation than ever as land values and the market are on edge trying to decide if prices will be pressured down or if the market will establish a bottom.
Land values have exhibited an underlying base of strength from several factors including historically low interest rates, low supply of land for sale and adequate buying capital. The other side of the land value equation is seeing increased uncertainties that could weigh down the land market.
The biggest concern at this time in the agricultural land market is the financial health of producers, noted Dickhut, who directs real estate brokerage for Farmers National Company. U.S. agricultural is in its sixth year of a downturn with overall net farm income for 2019 projected to be down 50 percent from 2013. Working capital has declined almost 70 percent since 2012 and inflation adjusted farm debt is at the highest level since the 1980s, he said. Low commodity prices coupled with rising costs have squeezed profits and working capital causing farmer buyers of land to be more cautious, he added.
Overall, U.S. agriculture remains in solid financial condition despite weakening on a number of fronts. Debt to asset ratios are worsening, but remain below recent higher levels. The number of farm and ranch bankruptcies is increasing, but are far below what was experienced in the 1980s. Land values that have held up better than expected have supported the growing level of financing required for some producers, Dickhut said.
With the known problems that agriculture and the land market are facing, there are also uncertainties that will have an impact on the sale and price of ag land. Immediate concerns include low grain and milk prices and growing season weather. Trade issues continue to have short-term effects on commodity prices and production costs while the potential for ongoing negative impacts becomes possible the longer trade is disrupted. Interest rates look to be stable for the foreseeable future, but world economic performance is more uncertain. Dickhut explained.
Agricultural land values have been surprisingly resilient over the past two years despite the continuation of depressed farm incomes. Supportive factors combined to hold land prices in most areas, especially for good quality farmland, he said. Concerns are building in the land market primarily surrounding the financial health of farmers and ranchers.
“As 2019 unfolds, the land market will remain on edge watching farm finances, weather, and trade issues. The outcome of these and other unknowns will guide which direction land values will move over the coming months. With the land market on edge, buyers and sellers of land need the most trusted advice available to navigate the uncertainties” Dickhut said.