Agricultural land in the Upper Midwest has experienced substantial appreciation over the past several decades, with the recent years standing out. This includes cropland, rural homesteads, recreational land, and livestock operations.

Several factors have contributed to this trend, including record-setting yields, historically low interest rates from the late 2000s until 2022, favorable commodity prices, limited available land, and nonproduction agricultural investors. As we move into the second half of 2024, many of these areas have leveled off.

Cropland moderating

Many counties witnessed record-high land prices toward the end of 2022 and into the middle of 2023. Since then, the market appears to have hit a plateau. At this point, there is no market evidence of any major contractions in value. At the same time, we are generally not witnessing new record highs. The market can be characterized as stable.

Higher quality land continues to be more attractive to buyers. The reduced supply of land available for sale has offset higher interest rates, which historically would put negative pressure on values. With reduced commodity prices, most cash grain operations are looking at lowered profitability outlooks for the current crop year. However, the swing has not been adverse enough to result in losses yet in most cases. A certain degree of belt-tightening is starting to occur, contributing to the plateau in land values.

While land prices remain stable thus far into 2024, there’s a possibility of a slight weakening later in the year or into 2025. Various factors, including trade barriers, present challenges to the agricultural economy and land values. Nonetheless, the current market still sees robust sales.

The dairy picture

Both Minnesota and Wisconsin have strong dairy industries, which has driven demand for dairy farmland. Similar to swine, facility valuations remain challenging on smaller units, many of which are no longer selling as operating dairy farms. When exiting the dairy industry, a common trend has been to repurpose facilities for beef feedlots.

For those farms that continue as operating dairies, the situation varies by region, but we have seen some 300- to 400-head dairies change ownership. Fewer that are under that threshold have been sold. Larger, modern units have seen stronger value over the last few years due to higher new construction costs and probability of continuing in the industry, leading to strong demand. High milk prices led to strong profitability in 2022, but that was tempered somewhat by labor challenges, elevated feed costs, and high building costs. Investments in automation and robotics to help solve labor challenges continue to be prevalent across the industry.

Similar to trends seen in cropland, the following are some sale trends related to dairy farms:

Economic conditions: Fluctuations in milk prices impact the farm’s profitability, thereby influencing land values. Higher milk prices generally support higher land values as profitability improves.

Interest rates: Low interest rates have made financing more affordable, supporting higher land values. Conversely, high interest rates can put downward pressure on land.

Demand for sustainable practices: There is growing interest in sustainability. Farms employing sustainable practices may see more demand and higher values, especially if the end consumer is willing to pay more for their product.

Technological advancements: The adoption of new technologies in dairy farming can enhance farm efficiency and profitability, potentially boosting land values.

Effects on farm appraisals

The sale of cropland and dairy farms can significantly impact the appraised values of similar properties in the surrounding area. We have seen the same farms appraise for notably higher the last few years because of the trends identified above and other factors, including comparable sales, supply and demand, economic factors, soil quality, and infrastructure.

Appraisers often use recent sales of comparable properties to help determine the appraised value of a property. If cropland or dairy farms in the area have recently sold for high prices, this can raise the appraised values of similar properties nearby. A series of high or low sales can signal an upward or downward trend in appraised values.

High-quality, productive land will typically have a higher appraised value. Recent sales of such land can help set benchmarks for appraisers.

If there is limited cropland or dairy farm availability and high demand, the value of existing properties may rise. Commodity prices and interest rates will also affect the overall land market.

The presence of modern buildings, equipment, and irrigation systems can elevate the value of a dairy farm and cropland. Higher construction costs have been affecting appraised values for improvements, many times raising the values. Further, properties with recent investments in infrastructure typically set higher benchmarks for appraised values.

Farms closer to processing facilities, markets, or transportation hubs may also have higher value due to reduced transportation costs.

Sales of cropland and dairies provide critical data points for appraisers and influence the appraised values of similar properties. These appraisals impact producers’ financials, often raising equity positions.

As a lender, we recommend periodically appraising the farm. An appraisal may be necessary for a land sale or purchase, and a lender may require it for financing. It may also be beneficial to have an updated appraisal for succession and tax planning, to help understand the farm’s value for equitable distribution among heirs, and to determine estate taxes to minimize tax liabilities. Additionally, it can be helpful to have an updated appraisal for insurance purposes. Knowing the true value of a farm is critical for obtaining appropriate insurance coverage, especially with higher building costs.

The most likely outlook at this time is for markets to remain stable and the agricultural land value plateau to continue. Higher quality cropland continues to attract interest, and that will likely persist in the near future. Pockets of concentrated crop and livestock diversity, along with a significant processing base throughout the region, continue to provide stability to farmland across the Upper Midwest.