In a discussion with Farm Director KC Sheperd, Steve Morgan, Area Sales Manager for the South Central Region at Farmers National Company, shared insights on the current agricultural land market, the strength of specific commodities, and the enduring role of the producer. Farmers National Company, founded in 1929, specializes in managing farms and selling real estate for landowners across 28 states.
Hot Commodities in the Land Market
Morgan notes that the market is particularly strong for a few specific land types:
- Grass/Cattle Ground: Grass is “extremely high” right now, fueled by recent rainfall after a three-year dry spell. This, combined with strong cattle prices, is creating significant cash receipts and excitement for cattle-related land.
- Recreational Property: Land for hunting and other recreational activities is currently bringing a “high dollar”.
- High-Quality Farm Ground: High-quality farmland is largely maintaining its value and has been less affected by market fluctuations. However, average to below-average ground is beginning to fall off, largely dependent on the competition level and profitability history within those specific communities.
The Interest Rate Effect
Despite rising interest rates, Morgan was surprised that they did not curb land values as much as anticipated.
- Profitability as the Driver: The profitability in the agricultural sector was strong enough to drive land prices up, overriding the typical pressure from interest rates.
- Future Outlook: As interest rates begin to come down, Morgan suggests this might encourage investors to return to the market quicker than expected.
Who is Buying the Land?
The primary buyers of agricultural land remain the producers themselves, even in communities where profitability has been halved.
- Producer Dominance: Producers account for approximately 78% to 80% of all land purchases. They are still highly interested in high-quality land, even if it means selling off a less-ideal tract to facilitate the purchase.
- Investor Role: Investors are still present in the market, but the on-the-ground producer remains the most frequent buyer.
While there is some movement of people buying recreational property, Morgan does not see a significant mass influx of buyers relocating to the Midwest from other states due to regulatory or political reasons, especially when comparing Oklahoma and Kansas to states like Texas.
Land Value Outlook and Advice
Morgan currently sees the land market as having plateaued. He anticipates a “backside” where some locations, particularly those with below-average ground, will retrace (see a temporary reversal in price). He has already seen some below-average ground retrace by 20-30%.
The biggest factor to watch is the volume of land hitting the market after the first of the year, as some producers may need to sell a smaller piece of land (an 80-acre or quarter-section tract) to generate working capital. If a large amount of average or below-average ground floods the market, demand could fall off and further depress those values. Morgan believes that high-quality ground will continue to maintain its value.
For aspiring farmers who lack succession land, Morgan’s advice is to treat agriculture as a business. He recommends pursuing an education in marketing or agri-science to bring a strong business mindset back to the farm, rather than just relying on the “out-work-the-neighbor” approach.
