The farmland market was level to slightly higher in 2018 despite another year of low profit margins for farmers, rising interest rates, and global economic uncertainty. Overall, however, farmland values continue to trend slightly higher as interest from farmers who saved in the years when they had a better income and investors continue to provide support. The first half of 2018 showcased the strength for values because limited land was sold. That bump in grain prices during the late winter and early spring season in 2018 brought along with-it solid pricing opportunities for both old-crop and new-crop. More importantly this bump established a relatively strong spring price for revenue-based crop insurance policies. The growing season brought too much rain in some areas and too little in others. Then the Chinese trade and tariff issues hit, sinking grain prices and optimism. The cattle market has tumbled back to historical averages as well. This shift impacted the market and the overall land market confidence in 2018, reducing the number of buyers chasing properties. This market also created some excellent buying opportunities for those who wanted to remain in the market.
In 2019, I will definitely be watching farmer buying versus investor buying. Trends are now emerging from the farmer buying pool that I will be paying close attention to. The buyers are definitely being more selective on when they buy and how far they are willing to compete for and buy a farm. Commodity prices are working through big U.S. crops, world demand, changing tariff effects, and planting time projections all coming together to make it difficult to predict price levels this coming year especially if you add in continued weather variability.
Looking forward, these factors will continue to put pressure on farmland values although it’s still too early to tell what extent they will impact value. I will also be watching interest rates because farmland values seem to follow real interest rates and the value of agricultural production. Increased real interest rates might not be good for the value of U.S. farmland and a strong U.S. dollar could negatively affect crop prices. What happens to farmland values might depend on whether higher crop prices can offset the negative effect of those interest rates or whether lower prices for corn, soy, and wheat compound them. With another year of lower farm incomes, one begins to wonder how aggressive farmers and ranchers will be in adding a large capital purchase onto shrinking cash flows. Given the factors in place at this time, it seems like the land market in 2019 will react much like it has the last several years, but with increased amount of caution on the part of buyers. Investor buyers are being patient to make the best buys while avoiding any over bidding for a farm/ranch. Of course, outside influences can change any of these factors on what could or will happen in 2019.
Just remember the intrinsic value will always be associated with Montana farmland including scenic beauty, wildlife habitat, and recreation. These values are constant. As a professional in the industry, I suggest asking yourself the tough question is now the time to sell your legacy farm or ranch? It seems to be a golden opportunity in a time of uncertainty in the market and a peak in theory of real estate values in the short term. As the writer John Steinbeck said, “I’m in love with Montana. For other states I have admiration, respect, recognition, even some affection. But with Montana it is love. And it’s difficult to analyze love when you’re in it.”