As we face much uncertainty, one thing remains: Farmland values are strong.
A farm management specialist talks about what’s influencing this market.
Randy Hertz, Chief Executive Officer (CEO) for Hertz Farm Management, says farmland prices have shot upward over the last 20 years.
“Look at what farmland values were 20 years ago. They were much lower than they are now,” Hertz said. “We went through a time (when) it was on rocket fuel for a couple of years. Since the high in 2012, 2013, we’ve seen a little settling back.”
Farmland values have decreased by 20- to 25-percent. However, strong buyer interest continues to fuel the market.
“The real shortage is in high-quality land,” Hertz said. “People always like to buy the best. Land that has a few barnacles attached – an irregular boundary, a creek going through it, wet spots, and bottomland – has dropped a little bit more. But we’ve seen some high-quality land sell for almost as much as it would have sold for back at the high in the market.”
Hertz adds lower interest rates also make land purchases more attractive to eager buyers.
“Interest rates remain fairly reasonable,” Hertz said. “Long-term rates have moved up a little, but not a lot. Short-term rates have moved up a bit more. But what we call the cap rate, the net operating income divided by market value of assets, has stayed steady for the last 50 years. Farmland has a pretty strong anchor on what that cap rate would be, and that’s important.”
No one knows for sure what is in store for farmland prices, but Hertz reflects on the resiliency of the market.
“I’m amazed at how steady it’s been the last few years. There’s been a lot of disruption,” Hertz said. “We have a lot more disruptions with all our trade partners, tariffs with China, uncertainty about the weather, with flooding and excess moisture content. Farmland has been very resilient. We still have strong demand from buyers, (and) there’s been a little change in what farms are auctioned versus which farms are listed and sold.”