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In a month the winter farmland sales season will wind down as attention turns to planting and the future of the 2022 crop. The amount of land sales has slowed from the torrid pace of last fall, but there is still good activity. We are seeing strong sales prices but also a bit more caution in a few specific sales depending on land quality and the local market. In looking ahead over the next six months which gets us to the fall land sales season, there is as much uncertainty as ever in how the farmland market may or may not be affected by varying domestic and global factors.
Owning farmland is normally a long-term investment covering decades whether you are a farmer or an investor. Short-term events or financial changes may not have an effect on long-term land prices, but then again, it depends on the change. In the near term, global agriculture is facing a number of potential short-term (hopefully) events that could affect farm income and therefore, the income that supports land prices at any given point in time. Of course, the Black Swan event that has now happened is the Ukrainian situation. What will be the effect on global grain trade, energy trade and prices, and ultimately grain prices? Grain prices will be whipsawed up and down while fertilizer and input costs will go up. The question is whether land prices will respond to this situation.
Two economic factors that could change are the effects of inflation and interest rates on land prices. Real estate investments and especially farmland are usually considered good hedges against escalating inflation which creates demand from investors to own a land asset. Conversely, higher interest rates are considered to have a dampening effect on real estate prices. The interest rate effect will depend on how far and how fast the rate increases happen. At this point, the predicted moderate increase in interest rates may not have an overarching effect on land prices given the other factors that could be present.
The supply of land for sale and the demand from buyers will have a major effect on the direction of land prices the next six months and longer. At this time, the sizable increase in the amount of land sold during the last half of 2021 does not seem to be carrying over into 2022 for various reasons. Farmland is typically in tight hands and only a very small fraction trades in the open market each year. With the uncertainty in the world and markets right now, the expectation would indicate a normal to lower amount of land to come on the market as land is considered a safe investment in times of uncertainty. On the other side of the equation, demand to own farmland probably will remain strong from farmers who are seeing very good grain and livestock prices along with investors seek a farmland asset. Together, the normal supply for sale and good demand should help support land prices.
In the end, the land
market should be active and support steady to firmer farmland prices over the
next six months. Uncertainty remains about both other unknown events or changes
and the magnitude of change of each factor.
Senior Vice President - Real Estate Operations
|Category: Agricultural Real Estate News|