Tight inventory of farmland will keep values high in 2013

By Heather Hetterick

The uncertainty of capital gains tax changes encouraged a flurry of farm ground sales in the last quarter of 2012.

“It’s been a seller’s market. There’ve been more buyers out there than there have been sellers,” said Roger Hayworth, East Region Area Sales Manager, Farmers National Company.

He said the overall listings on the market currently have slimmed down.

“Even though the availability of land opened up a little bit at the end of the quarter in 2012, it’s basically closed down now that we’re in 2013,” Hayworth said. “I do see that availability will still probably be sluggish in 2013 compared to 2012.”

In the past several months, new record highs for farmland have been set across the Midwest. In October, 80 acres of farm ground in Sioux County, Iowa sold for a record-setting $21,900 an acre.

“We have seen record highs continuing in different locations across the country throughout 2012 and we see no sign of that letting up,” Hayworth said. “Values for quality land increased as much as 20% in 2012 for some locations.”

Top prices in the region can be seen in Illinois at $12,000 per acre on average for  high quality land. That is followed by Indiana showing values up around $10,000 per acre and Ohio at $8,000 per acre.

As Hayworth points out though, there are many factors that go into determining the value of farm ground. Just because land has sold for that much, doesn’t mean all ground is valued at that.

“Sometimes individuals might think, ‘If that land sold for that amount then I have 80 acres that must be worth that,'” Hayworth said.

Details of the property including: soil type, location, productivity, condition, tillable or non-tillable all play into the value, in addition to many outside factors.

“Inflation, interest rates, commodity prices, world events and weather come into play on value for farmland in today’s marketplace.” Hayworth said. “Any one of those could have some bearing to either continue with the rise, fall or correction in the marketplace.”

At the lower end of the spectrum is recreational and transitional property.

“About three years ago recreational properties dropped — the bottom fell out. Also, lower grade soil types were stagnant. In 2012, we started to see those increase, but still remain at the low end of the value spectrum,” Hayworth said.

While farmers continue to be the majority in purchasing farmland, there is still investor interest.

“We do have investors that are out looking. If they can secure a return of 3% to 4% they consider that a good bang for their buck,” Hayworth said. “If that’s buying a property at $5,000 an acre and cash renting it or finding land at $9,000 an acre and getting a cash rent equivalent to that investment rate, that’s not a bad deal either.

“Right now land is probably one of the largest investment opportunities for people. That’s why the value continues to rise. It’s a safe haven for money. You can’t get a lot for your saving accounts or money markets, and they’re looking at land as an alternative.”

 

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