Market forces and strong commodity prices continue to create record demand and sales activity for farmland, but there are several unknowns that could impact the coming year, according to Farmers National Company, the nation’s leading agricultural services company. This uncertainty is creating strong sell-side interest and buy-side activity, leading to record levels of land changing hands for Farmers National Company.
“Although across the Midwest the inventory of land for sale is still really tight, Farmers National Company is experiencing increased sales activity. The demand continues to be very strong with increasing prices even at current levels,” said Lee Vermeer, AFM, ALC, vice president of real estate operations at Farmers National Company. “Sales volume at Farmers National Company is up 40 percent compared to 2011, setting a record pace. We are projecting that the remainder of 2012 will see continued interest from landowners regarding potential land sales.”
Farmers National Company sold $600 million of farmland in the past 12 months, with $350 million of that in past six months. This equates to 800+ farm sales during that time period, Vermeer said.
A balance of positive and negative market pressures, along with many uncertainties, is driving current market activity. The positive news for land owners is that demand for grain from world markets remains strong and there is still a limited supply of land, boosting land prices. In addition to that for land owners, returns have been strong over last year even though input costs have increased.
The uncertainty comes from unpredictability in Europe, potential for inflation, and the looming possibility of tax law changes that would increase capital gains taxes. Also, a good growing season could lead to record production levels and lower commodity prices reducing land profitability. These and other potential changes could slow the land market slightly, according to Vermeer.
“I believe that sales activity will remain strong until some of the market uncertainties become known,” said Vermeer. “People still see land as a safe, tangible investment and are willing to keep their money there over the long-term.”
High auction activity continues to help boost land prices with Farmers National Company conducting nearly 160 in the past six months alone. However, according to Vermeer, he is still seeing some landowners selling well below the market, leaving thousands of dollars on the table because they are not adequately exposing their property to the market.
“In a competitive real estate market like we are in, the only way to take full advantage of it is to allow the market to work for you,” said Vermeer. “Full exposure to the market is the only way to know you received the full value available.”