Several factors will come into play in 2017 that will determine the direction of land values. Within Idaho, the outlook is relatively stable rates that continue to favor landowners.
In the past three years, agricultural landowners in many regions across the country have seen a decline in profits, which also pushed land values lower, according to Randy Dickhut, senior vice president of real estate operations for Farmers National Company.
“This winter, questions abound as to the direction of commodity prices, interest rates, inflation, challenges in the world economy, weather and U.S. tax law,” Dickhut said. “Buyers of ag land are asking if it is an opportune time to make a purchase of a farm or ranch, while sellers are asking if the market dynamics are indicating that it is good time to sell land. Depending on location, quality of land and other factors, our agents report seeing regions and local areas where land prices are stable to somewhat strengthening post-2016 harvest. Then there are other areas where land values have continued to decline.”
A key factor impacting land prices will be interest rates, Dickhut said. Grain and livestock prices affecting farm and ranch income also will influence land values.
“Foreign trade policy and its effect on agriculture will be closely watched over the next few months. Potential changes in tax laws could affect estate taxation and capital gains rules that in turn influence buying and selling decisions,” Dickhut said.
Within the Gem State, irrigated cropland land values have remained relatively stable since 2015 across southern Idaho. Although a few leases have been negotiated at lower levels, most rental rates are remaining steady at present, according to Brent Stanger (farm and ranch asset manager, real estate salesman, and Accredited Rural Appraiser).
“Some growers report that they have tried to renegotiate more favorable leases, but most landowners are not yet willing to come down” he said. “The competition is still strong, and most tenants have opted to continue to lease the properties, even at current rates, as they do not want to lose control of the land and feel that if they walk away, another operator will come in and pay the stated rent to obtain control of the land.”
As background, record high commodity prices were experienced for most crops raised from 2008 through 2015, creating significant increases in irrigated land values along the Snake River Plain in Southern Idaho during this time. Most commodity prices have decreased considerably at present.
“Although there have been decreases in land values noted in the Midwestern states and much of the nation,” Stanger said, “land values have remained relatively strong and steady throughout Idaho and most of the Northwest. Since the mid to latter part of 2015, agricultural land values have remained fairly stable with some increases noted in certain circumstances. We have a greater diversity of crops in Southern Idaho and much of Northwest as compared to the Midwest which has helped sustain irrigated land values. Additionally, although banks are reporting some stress among some growers, most landowners remain in fairly good financial condition after experiencing the years 2008 – 2015.”
According to Stanger, there continues to be very little supply of good quality irrigated cropland for sale on the open market across southern Idaho.
“Many farm sales never hit the open market but continue to be negotiated between local operators or investment based buyers,” he said. “As history has shown, top-quality cropland will likely hold its value much better than lesser quality cropland which may experience longer marketing periods and decreases in value initially. This has already been exhibited in the Midwest, where top quality land has retained its value quite well.”
Water rights across southern Idaho and within the Eastern Snake Plain Aquifer (ESPA) have become of great concern. An agreement was entered into between the Surface Water Coalition, (SWC), and the Idaho Groundwater Appropriators, Inc., (IGWA), in 2015 to decrease groundwater pumping from the ESPA by 12.4 percent in an effort to increase returns to the Snake River and to satisfy senior water right holders. The cutbacks in groundwater diversion began during the 2016 season and will continue at least until the stated goals are reached years from now and likely thereafter.
“The ESPA is divided into several groundwater districts that are allowed to determine individually how they will satisfy their allotted cutbacks in water usage within each district,” Stanger said. “Every groundwater district is administering the restrictions and cutbacks in a different manner. It is therefore paramount that any potential market participant, (seller or buyer), of agricultural real estate know which groundwater district the land is in within, how the regulations are being administered, what the priority dates of the various groundwater rights are and how the farm may be impacted with respect to the amount of water available.
According to Stanger, many unknowns remain at this point in time.
“One thing is certain,” he said, “the priority dates of water rights are now being examined very closely by market participants. The groundwater right issues within the ESPA are very complex and often take several hours or days to fully investigate, depending on their complexity and the size of the farm.”