What's the Best Time of the Year to sell your Farmland?
One of the common questions we often get from Iowa farmland owners is, “when is the best time to sell a farmland?” This question attracts different responses depending on the Iowa farmland professional you ask. Most land auction companies and brokers will give you their opinion regarding when they think it is the best or wrong time to sell farmland in Iowa.
Selling land is a touchy subject, which is why we tell farmland owners if the right agreements and prices in their favor, ANY time is the best time to sell such an asset. As a potential land seller, it is in your best interest to hire a land management or real estate company that can help analyze the markets and other factors that could influence your decision to sell a piece of farmland.
The location of your property also determines the right time of the year to sell it.
Farmlands in certain areas in Iowa sell better during the spring months and worse during the fall months of the year. For instance, southern Iowa lands are associated with a higher level of diversification on lean heavier on yearly timing compared to the flat black tillable land in the northern region. Most potential buyers in the northern region are active in the fields during fall months, affecting farmland sales. Spring planting can also get in the way of potential buyers’ attendance for land sales.
Each month of the year will mean a difference in the terms of land sale, but there’s no bad month to sell your farmland. The majority of differences lie in how the income is split. For instance, if you sell your farmland on March 2nd and have the entire crop year ahead, it is best to allow the buyer to have the income for that crop year. But if you sell the property on July 2nd, you may be in a position to split the income with the buyer. Unfortunately, suppose you sell the same property on December 1st with possession on March 2nd of the following year. In that case, the chances are that it will be an auction with no opportunity of splitting the income.
Terms of farmland sale could determine the right time to sell farmland.
At certain times of the year, farmland owners and tenants have different interests, rights, and possession of a property. There are also other times when you sell farmland that you must accommodate the current farmer’s and potential buyer’s interests of the property. Terms of property sale partially determine how much money a potential buyer may be ready to pay for the property, depending on the specific month of the year you intend to sell your land.
With prices increasing, farmland is currently a hot commodity.
Across the entire Midwest region, farmland prices are surging, fueled by the recent rally in the cereal or grain market and favorable interest rates. Other key forces driving the farmland market in Iowa include strong investor interest (due to a surge in net farmland income), limited farmland for sale, and government support for farmers. The Coronavirus Food Assistance Program payments and Market Facilitation Programs are some of the examples of government support programs for farmers.
From September 2020 to early March 2021, farmland values increased by 8 percent. This is following a 12-month period characterized by unchanged property values. Of the nine reporting Iowa districts, the northern region experienced the highest growth rate, ranging from an 8.3 percent to 9.6 percent increase in cropland values. We believe these numbers are likely to increase in the next few years.
So far, 2021 has experienced an incredibly competitive farmland market across the Midwest region. The most recent land value surveys reflect what we, as auctioneers and farmland brokers, have been anecdotally reporting in the past few months.
A recent report by the Federal Reserve Bank of Chicago revealed a 6 percent year-over-year increase in farmland values in the Midwest region. That’s the most significant such increase since 2012. This report also shows stable-to-increasing market prices. Note that the Midwest region (according to this report) includes northern Illinois, Iowa, southern Wisconsin, and larger parts of Indiana and Michigan.
Put simply, farmland value is the net present value of the discounted future income flow. With some assumptions imposed, it is easy to think of farmland value being net income divided by the interest rate (discounted rate). To effectively understand the significant changes in the value of land over time, it is essential to analyze how interest rates and net income are likely to change over the next few years. For this reason, we advise that you consult with an expert with a wealth of knowledge of the Iowa farmland market.
Generally, increasing farmland prices, lower interest rates, and rising farmland income tend to push land values upwards. From this perspective, the recent increase and stabilization in the Iowa farmland market are consistent with the reports of increasing farmland income and other underlying demand and supply forces.
The expected agricultural export surges and interest rate cuts have a significant impact on farmland prices, farm incomes, and overall farmland value. Though it is impossible to predict the future accurately, it appears the Iowa farmland market has proved its resilience during the COVID-19 pandemic. This has made farmland a hot commodity in Iowa. Most farmers are eager to cash in selling pieces of farmland, resulting in an investor shopping spree.
It’s up to you
The truth is that the best time to sell farmland is when the various factors in the market fit you. Over the years, farmland has become a key long-term, safe investment for most Iowa residents. It is a business decision with both long-term and short-term considerations. Striking a balance between your interests as a seller and the buyer’s interest is the most challenging aspect of a farmland sale.
Fortunately, at Midwest Land Management & Real Estate Inc., we have been helping farmland sellers and buyers handle land-related transactions. Also, we offer farm management and crop insurance. You can rely on our wealth of knowledge regarding the property market and many years of experience in the Iowa farmland market.