One of the main forces that the experts often cite to explain why farmland prices are remaining steady in this environment of low commodity prices is scarcity. While it’s easy to say that there are fewer farms selling, it’s often hard to quantify with real numbers. However, a recent report from Farm Credit Services of America and Frontier Farm Credit, essentially those organizations in the Farm Credit Services system that cover the majority of the western Corn Belt, provide hard numbers which support the “limited supply” argument.
In 2017, the number of sales in the five states covered by these two lenders decreased by ~ 270 farms, or 7.5 % compared with 2016. While that doesn’t necessarily seem like a large number, what gets my attention is the decrease from 2012… 2,600 fewer farms or a 44% decline during this five year period! Unfortunately, similar data is not available for the eastern Corn Belt though anecdotal evidence would suggest a similar decline. Yes, the number of buyers have decreased – we’ve gone from 4 or 5 aggressive bidders at each auction to 2 or 3. But as long as there’s a limited selection of farms to choose from, you don’t need as big a pool of buyers.
I’m still somewhat convinced that this decrease in the land supply has been driven primarily by the low interest rate environment. For years, I worked with heirs and beneficiaries that would sell their farm when the estate was being settled versus holding on to the acreage. Course, that was when short term rates were at 5% and not 0.5%. The fact that land was rapidly appreciating each year also helped. Will this trend change with interest rates slowly moving higher? In all likelihood yes, but it may takes several rate increases before we see a noticeable difference.