Average Values Up 20% for High-Quality FarmlandJun 14, 2013
An accelerated farmland sell-off at the end of 2012 has led to continued low supplies of premium quality property, according to Farmers National Company, the largest farmland and ranchland real estate company in the country. Last year’s rush, prompted by economic uncertainty and tax law changes, continues to have an impact into 2013. High-quality land is still in demand, and buyers are competing for top acres that are currently in short supply.
Competition for land has kept values strong, averaging 20% higher values over comparable land in 2012. Much of the continued rise is due to auction activity driving sales prices as purchasers vie for parcels of land. Mid- to high-quality properties are still seeing such rises in value, while lower-quality land values are staying steady.
“Values are still going up, but the pace has slowed overall,” says Derrick Volchoff, ALC, vice president of real estate operations at Farmers National Company. “Many transactions for high-quality land are being sold via auction, which drives prices through competitive situations.”
Auctions today have turned very competitive with bidding wars becoming the norm for high-quality land sales. Areas of the country that normally do not run auctions, such as the Delta region, are now seeing them on a regular basis, according to Volchoff.
“Despite an overall moderation in the number of sales transactions since the end of last year, there has been noticeable growth in the size of parcels being sold per purchase,” says Volchoff.
Moving into the third quarter of 2013, Farmers National Company expects the number of transactions being closed to increase, based on activity seen in the past 60 days.
“During the first two quarters of 2013, there has been a hiccup in activity based on the surge at 2012 year-end,” said Volchoff. “However, the trend seems to be shifting upward again and transaction numbers for the balance of the year should remain relatively steady.”
Investors are sticking with land as a safe, long-term investment while farmers are putting cash from past yearly profits back into operations. Built up cash reserves for farmers are prompting farm operators to buy premium land when it becomes available to add to their inventory and to accommodate the return of younger family members to farms. For both groups, economic uncertainty is still driving purchase decisions. Farmers are looking for premium land on which to expand, while investors may purchase properties based on price and projected return on investments.
“Even with recent drops in crop size for farmers, profits are still at a level higher than in 2010,” said Volchoff. “Farm debt is still low in relative historical terms.”
According to Volchoff, several issues in the U.S., such as healthcare and interest rates, are likely to impact economic trends and thus land inventory levels and sales activity once they are resolved. The direction of market and political issues will likely shape the rest of 2013. As the housing market improves, developers will likely begin to buy land for development. This could trigger more 1031 tax deferred exchanges pushing new money into the market.