Everyone in agriculture keeps a close watch on the little tells that may provide some insight into where the industry is headed economically. One of those tells is the current value of farmland and its outlook for the future.
Now that we have closed the books for 2019, it’s time to turn our focus to 2020. How will farmland prices fair this year? Let’s take a look at what the experts are saying and what that could mean for you and your farm operation.
2019 was a steady year for farmland prices
In general, farmland prices in 2019 behaved the way they have in recent years. There was not much movement on the whole in terms of price fluctuations.
Thanks to a lower supply of farmland than what is considered average, the price of land was able to maintain a fairly steady level. There may have been a slight uptick in sales in certain areas, but a fair amount of demand likely took care of that availability and kept the supply lower than normal.
This good news stood in contrast to how many industry insiders regarded other factors affecting agriculture, including biofuel and trade issues.
Though it is useful to keep an eye on what’s happening to land values across the country, it’s even more important to watch for regional and more local factors that can affect one area more than another.
2020 shouldn’t be much different
Most folks will tell you to expect from 2020 what we saw in 2019. According to AgWeb, there was a decent amount of optimism when producers looked forward and into 2020.
One survey of U.S. landowners and farmers found, as reported by AgWeb, found that 55% of the people who responded said that they expect land values to go unchanged this year. For reference and comparison’s sake, that number was 48% in 2019’s version of the survey.
In addition to the increased optimism is a decrease in pessimism. Only 34% of the respondents said that they expect to see land values to decline in 2020. In 2019, that answer was given by 48% percent of the respondents.
In what could be good news for those few farmers who do want to sell, nearly half of the survey respondents indicated that they would be looking for land to buy this year. However – and this shows just how tight everything is at this time – only 6% of the respondents said that they expect to be selling land in 2020.
A closer look at Iowa farmland
Let’s zoom in on Iowa farmland for a bit. For that, we’ll look at what Iowa State University Extension and Outreach discovered in the latest Iowa Land Value Survey.
That survey shows a 2.3% increase in average for farmland values in Iowa between November 2018 and 2019. The values are not rebounding very quickly, but there is a slow and steady increase from the looks of it.
Iowa farmland can credit its recent modest increase in market value to lower interest rates, stronger yields, strong demand for quality land that is available and the fact that there simply is not a lot of land up for sale right now. The survey authors state that though the increase in market value is modest, it still reflects a farmland market that is stable.
Many Iowa farmers are concerned, however, with low commodity prices, weather and trade uncertainty as negative factors contributing to how the land market is currently reacting.
Overall, though, the survey points to Iowa farmland remaining stable in 2020.
Factors that could influence farmland values
Farmers always seem to have a finger on the pulse of farmland market value trends – as they should. Here is a quick rundown of what to watch for as we watch those trends this year.
Interest rates should remain low
Low interest rates that actually fell more in 2019 – a surprise to many – helped prop up land values for many farmers.
Interest rates have reached very low levels and should be able to maintain those levels as we look toward the rest of 2020. These lower interest rates usually lower interest expenses for producers and can serve as an incentive to invest in farmland. They also support farm income and land values.
According to the Iowa Land Value Survey, interest rates are definitely worth keeping an eye on because it is still not clear whether the Federal Reserve will continue to cut interest rates – or by how much if the rates are cut.
Commodity prices look to be stable
Commodity prices have held and that fact seems to be signalling that the agriculture economy has found, or has found a path toward, stable ground.
As long as we don’t see too much shift in commodity prices, land prices should also benefit from that stability.
Watch policy issues
Farmland prices can be affected by a wide variety of issues at home and abroad. This includes policy issues, such as trade policy and how the U.S. dollar stacks up against competing currencies.
Unless trade policies start to get cleared up and settled – and there are signs this could begin to occur – land values could creep downward over time. However, the price of farmland could really pick up steam if details of these long debated and awaited trade deals are revealed to show benefits for the agriculture industry.
At Iowa State University, the Iowa Land Value Survey states that the high uncertainty of these trade issues, specifically with China, means the potential for significant shake ups in agriculture, which depends heavily on trading with China.
Monitor alternative crop trends
Some experts believe alternative crops, including hemp, could be something to watch in 2020. If interest in growing alternative crops increases, then farmers may make more moves to invest in land.
Get the Advantage
A little expertise can go a long way in any industry, especially in farming. If you are looking to sell or buy farmland in 2020, contact Advantage Realty and Land Management to see how partnering with us will give you the upper hand.