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What is happening in the land market?

”In the midst of the coronavirus, no one knows where the overall world economics are going, let alone where agriculture’s economics are headed during this uncertain time, but we do know there will be a lot of change,” Randy Dickhut, Farmers National Company senior vice president of real estate and guest speaker, said during an April 20 webinar that took the place of Chicago Farmers usual meeting setting due to the coronavirus and the large group restrictions that are in place. Farmers National, a gold Sponsor of the Chicago Farmers, manages $9.2 million worth of land and is one of the country’s largest independent oil and gas leasing firms.

Randy explored what owning land was like before the coronavirus, what it is like in early 2020, and what will be the new normal.

Land is important to agriculture and it is growing in importance, said Randy. It comprises 83 percent of the total assets in agriculture, making it almost 100 percent of the equity in agriculture. He noted that the stability of agriculture rests in its land values.

Referring to land values in Nebraska, Iowa, and North and South Dakota, Randy said that land values have had “quite a ride” since the early 2000s. He said that land values are increasing due, in part, to the fact that the Corn Belt is expanding north and that has added value. The peak of the land values hit in 2013, but the values have not fallen much for average land.

Giving examples of land values, Randy related that values in Illinois had increased to more than $7,000 per acre for average land in 2019. In Kansas, the valuation was $2,000 an acre, but the numbers were inching up. Land values in Arkansas were at $3,500 an acre and they had not plateaued. “Values in Arkansas were moving upward because the Arkansas delta region has a number of crop options that include corn, soybeans, rice, and cotton,” he said. “The area also attracts a lot of institutional investors because of the size of the tracts and land prices are low.”

Randy went on to say that farmland is a good long-term investment and compares favorably with other real estate investments: it offers consistency, the land is always rented; there is no vacancy.

He noted that farmland correlates to 10 year Treasuries. It is also a hedge against inflation. While farmland ownership compares somewhat to the movement of gold, it is more or less counter cyclical to the stock market, so it is a good investment for spreading out assets.

Land values were in positive territory in the early 2000s, but they are not as good today, observed Randy. At the opening of 2020, farmers had a little bit of optimism: grain prices were getting slightly better as well as livestock and dairy prices. Additionally, the United States was in Phase I of the China trade deal and the third payment of MFP had been made.

Randy added, “But, the best laid plans go astray.” He did note, however, that land values are holding due to low interest rates. Randy said there also is not much debt in agriculture now. The issue is the lack of availability of working capital. If grain values would increase, the future would look brighter.

In the long-term, there are a number of converging trends that will have effects on agriculture and land values, Randy said. He noted the internet and artificial intelligence, ongoing generational land transfers, food preferences and changing eating habits, and changes in food production. “Things change quickly and land values change quickly too,” said Randy.

He said the “new normal” will be affected by three trends:

• Sustainability in resources and food and secure sources
• Traceability, where our food is coming from
• Changes in land ownership through technology and purchases by institutions

Randy observed that climate change and land usage also will impact land values; however, the Midwest continues to be a prime spot for investment. Experts are studying how much useable land the country has. He said that one-half of the land goes to agriculture for pasture and feed grain. “Will that remain to be the case as we move forward?” Randy asked.

Among the challenges that agriculture will face:

• population loss in rural areas
• migration from urban areas to rural areas, which could cause changes in ownership of land
• technology is increasing yield and less land is being used with better crop production
• the effect of growth in electric cars on fuel and corn
• lab grown food
• population growth or leveling off of population
• Covid 19’s drastic effects on grain and livestock prices

In response to a question about lenders from a webinar listener, Randy said that March and April brought crashes in ethanol and livestock prices, which will pose real challenges to lenders for equipment purchases and other purchases. “I am sure lenders are making plans now on how they will mitigate those losses,” responded Randy.

Responding to another question, Randy said that the best times to sell farmland are late summer and early fall. “We usually see a lot of activity post-harvest,” he said. The next best time is mid-January to February; however, “farmland will sell at auction year-round.”