As I write this, we are in the midst of the annual "weather markets." The crop has yet to be made. Hopefully, by the time you read this, the uncertainty will be behind us.
Throughout much of our trade area, August rains — or a lack thereof — often determine how a crop finishes.
Commodity prices, yields and interest rates, in that order, continue to have the greatest influence on the land market. The fourth factor, which has become increasingly important over the past decade, is government fiscal policy and the level of support provided to farmers.
As we head into the fall land market, there will be plenty of testing, with dozens of land auctions already scheduled and many more to come. You might be one of the families making the incredibly difficult decision to sell farmland. That is never an easy conversation, nor is it one we take lightly.
Most of the volume we're seeing is tied to the tremendous wealth transition taking place across production agriculture. Every family looks different. For some, it means passing land to the next generation already involved in the farm. For others, it means selling land that has been owned jointly by brothers and sisters since Mom or Dad passed years ago.
As ownership becomes more diluted, making decisions together becomes increasingly difficult. The auction method provides a transparent way to establish fair market value. Buyers don't have to guess what to offer, and sellers know the market has spoken.
Demand still strong
Despite the challenges facing production agriculture, demand for farmland remains incredibly strong from the Canadian Prairies to the Corn Belt. Marginal land has softened from the highs of a few years ago, particularly where drainage, access or soils are less desirable.
Good land, however, continues to trade at levels near historical highs. Recreational ground is about as high as I have ever seen it in most areas, signaling strong fundamentals outside of agriculture.
I believe that trend will continue. The rural landscape is changing, as an estimated 5,000 data centers are being planned or built across the country. Many of those projects are being developed on farmland that has been in the same family for generations.
When these huge companies begin offering three to five times prevailing farmland values, land that "isn't for sale" suddenly becomes available. Because of the tax consequences, much of that capital will flow back into farmland through 1031 exchanges. I don't believe that receives enough attention when people talk about the future of the land market.
For all of these reasons, and despite the troubles in agriculture, it's difficult to see much downside in farmland values. If you're buying, be prepared when opportunities arise. If you've been considering selling, it's still an excellent time to do so. Farmland has proven time and again to be one of the greatest stores of wealth over generations. So, I say to you as my sales pitch, buy land! It truly is a great investment, and history proves it.