Demand for farmland is strong, but will it continue next year?

A farm sale in Iowa recently sold for more than $30,000/acre, highlighting the strong demand for farmland, but a real estate expert says he is unsure if the momentum will continue into next year.

According to the National Ag Statistics Service, Iowa’s farm real estate value was just shy of $10,000/acre in 2022, which is why the $30,000/acre sale made headlines. Paul Shadegg, the Senior Vice President of Real Estate Operations for Farmers National Company says while most land sales do not hit prices that high, prices still remain strong.

“We’ve continued to see a strong bunch of sellers and a strong pool of buyers, and when we see those record sales, we like to look into those a little deeper and see why that got driven so high. So, when we talk about recent sales in Iowa, those were legitimate sales driven by competition from adjoining farmer landowners. There are many times when we see a high value like that, and there are other factors to consider. It’s either development potential, or in the case of one that happened in Nebraska just recently, where there’s some speculation that there might be some other uses coming down the road.”

Shadegg says most land sales that reach higher prices are driven by farmer competition for the land.

“When we analyze who our buyers are and who is involved in our land sales, and we’re still finding that over 80 percent of those are operating farmer-buyers. There are some small instances where we see investment groups coming in and being aggressive, but typically, the investor buyers are not emotional. There’s nothing to drive them to a high level. They’re going to bid up to a certain point and then stop. So, when we see these high values, they’re usually based on a little emotion.”

It is difficult to say for sure whether land prices will drop in 2023. He says most industry experts thought land prices would settle a little this year.

“We are cautious about where this land market is going to go because we thought a year ago that we’d probably see more settling, and that didn’t happen. With commodity markets where they’re at today, and the other factors involved that are positive, we plan to see those land values remain strong, although I think we’re gonna see less and less of these record values. Interest rates are going to play a big part of that, and inflation is going to play a big part of that.”

Shadegg says the biggest driver of high farmland prices are the markets.

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