Agricultural Land Price Boosters

Editor's Note: See Reporter's Notebook video of Victoria Myers talking about what's influencing land values at https://www.dtnpf.com/….

**

BIRMINGHAM, Ala. (DTN) -- New economic drivers are emerging that will forever change the landscape of agriculture and the value of farmland.

Location and yield will always be important, but changes in crop and animal genetics, climate shifts, and new technologies are escalating in importance. Subtle and decades in the making, these market movers will create opportunities and challenges for both buyers and sellers of farmland.

North Dakota's Joe Morken has been watching land prices in the Red River Valley increase for more than 25 years. The third generation to farm in the Casselton area, Morken said a shift out of wheat and into corn has been pivotal for his family's nonirrigated operation.

"You can't understate the value of genetics when it comes to corn production here," he said. "Back in the 1980s, if you could break 100 bushels to the acre on corn that was really doing something. Today's earlier-maturing genetics allow us to double that some years. Add to that the growth we've seen in the ethanol industries in this region, and we have good reason to keep planting corn. It's changed the focus of our business model."

Those opportunities haven't come without challenges. Morken said extreme volatility in fertilizer prices has been especially tough to adapt to as a corn producer. Last year, he booked urea at $1,000 per ton; this year, he's looking at $400 to $500 per ton. The other challenge is labor. Morken said hiring drivers to keep trucks and grain carts running for combines in a tight harvest window is a major hurdle. But the area's increased productivity and cropping options have positively impacted land values in the region, he believes.

"In the Red River Valley, it's not just corn that pays the bills, it's soybeans, and it's sugar beets," he noted. All of which has drawn more interest to this land market.

This year, the state's annual report on rental rates showed a wide range for nonirrigated cropland, from as low as $29.20 per acre, to up to $150.50 per acre. In Cass County, where Morken farms, average rents were reported at $120 per acre. The USDA's annual "Land Values" report, released in August, put North Dakota cropland at an average price of $2,660 per acre, marking a 13.2% increase over 2022.

"Land prices have increased substantially," Morken explained. "In my opinion, strong profits in 2022 are one of the key reasons. Beans, corn ... all commodity prices have been up. So, there is more money out there. And, on the eastern side of the Dakotas, we see a strong investor side to the market pushing prices even higher. They come out of the cities, buy land and don't even farm it."

DEMAND FOR CORN

Morken isn't alone in seeing opportunity in corn production. The latest USDA "Trends" report showed that collectively Montana, Nebraska, North Dakota, and South Dakota have seen a 37% growth (about 4.9 million acres) in area planted to the crop between 1996 and 2018. Drivers behind increased corn acreage include demand from livestock feed and ethanol, as well as new technologies like genetically engineered hybrids and the adoption of more precision-farming techniques.

Between 1996 and 2017, U.S. corn yields increased 42%, going from an average of 130 bushels per acre (bpa) to 185 bpa. The Northern Great Plains experienced the highest growth in corn production over that period, from 273 million bushels in 1996 to 1.2 billion bushels in 2016.

RETURN ON INVESTMENT

John Botsford has 45 years of experience in land sales, management, and land appraisals. He started Red River Land Co., in Grand Forks, North Dakota, in 2009 and said increased profitability from the land has played a role in rising per-acre prices and rental rates.

"We have better technology when it comes to equipment and genetics," he said. "We see producers using a variety of tools to help reduce tillage and preserve soil moisture. That is key to profitability in areas like ours, especially when we're talking about nonirrigated land in western North Dakota and into Montana."

Looking ahead, Botsford believes a couple of things will determine where this land market goes moving into 2024. "Commodity prices are at the top of the list," he explained. "Then we will see what happens with interest rates. Today, rates of return on farmland as an investment are lower than CDs. That dampens enthusiasm for land purchases among investors. We were in an environment in this region where the buyer pool was about 75% producers and 25% investors. Now, we are seeing that shift to even more producers."

CLIMATE AS CHANGE DRIVER

While no one discounts the value of shorter-season crop genetics or new production technologies when it comes to the land market, there is reticence to discuss the impact of climate change.

Clair Keene, an Extension agronomist for small grains and corn at North Dakota State University (NDSU), isn't afraid to have that conversation. Having worked across much of the state, she said climate shifts are taking place without question across North America and have been recorded in terms of the length of growing seasons.

"North Dakota is still a very cold place," she said. "We can still have minus 45 degrees Fahrenheit air temperatures in winter. But what has shifted is the length of our growing seasons. Look back at NDSU publications from the 1950s, and you were happy if you could plant wheat May 1st. You were happy if there wasn't a frost before Sept. 1st. Your growing season was four months if you were lucky. Today, for most of the state, when we look at growing degree days from the south to the northern part of the state, we can plant wheat in southern North Dakota on April 1st," Keene added. "We've gained about a month reliably on the front end of the season. Plus, depending on the year, we have gained two to four weeks more on the back end of the season. So, that longer season coupled with shorter-season varieties in a crop like corn opens that up as a viable crop."

Keene said while she doesn't have a crystal ball, she's seen no convincing data that growing conditions are going to stop changing when it comes to climate. And that will reward those who can find smart and innovative ways to adapt.

"We are in a brave new world. There's no reason to believe that 30 years from now our climate will look the way it does today," she said. "As a result, agriculture won't look the way it does today. We will continue to see change. The rate of that change and the consequences we don't know yet."

SHIFT YIELDS OPPORTUNITY

You don't have to convince Lindy Savelle there's value in a longer, warmer growing season. She is one of a fast-growing number of Georgia producers who have turned to citrus as a high-value crop.

"We are pushing almost 4,000 acres of citrus in Georgia today," said Savelle, president of the Georgia Citrus Association (GCA). "That may not sound like a lot, but with citrus, 1 acre is like 100 acres of a row crop."

Lindy and husband, Perry, started their citrus operation in 2015, with 1,000 trees. Their farm was one of the biggest in the state then. But, today, with dramatic growth in the industry, they are one of the smallest. The couple have a nursery where they grow more than 100 varieties of citrus, helping the state's producers and their own operation branch out from satsumas, still the primary variety grown in Georgia. At their operation, where they now include an agritourism focus, about a dozen different varieties are planted.

"By far, the satsuma is the most cold-hardy citrus, so that's what people initially grew here," Savelle said. "Satsumas are a mandarin, very sweet with a zipper peel. But it doesn't have a good shelf life. When it's time to pick satsumas, there's not much time on the commercial end. That's why we're encouraging more diversity, to draw more acres to the state's citrus industry."

Along with varietal diversity, Savelle said growth in infrastructure is needed to handle the crop. Where only one citrus variety is grown, a packing shed may be busy for 60 days. Satsumas, for example, start coming in around the second week of November. What happens to that packing shed the other 10 months of the year?

"That's why we are widening the length of citrus harvest by adding varieties with earlier and later seasons," she explained. "We want to make the harvest season extend to the end of December or even the beginning of January."

Georgia citrus producers are seeing good yields, Savelle added. On a traditional root stock tree, satsumas yield 300 to 400 pounds of fruit. She said citrus production here is proof that shifts in growing areas for crops can make a viable difference in the value of operations.

"Citrus is that one thing a small family farm can manage without a lot of capital," she continued. "Our larger farmers also utilize the crop to bring diversity. Some mix citrus with pecans, or if they grow row crops, they put citrus on dry corners. It's that willingness to adapt to change that is making the difference."

Savelle added she believes climate shifts are a very real part of the reason her state has been successful in citrus production. "Pam Knox at the University of Tennessee spoke to the GCA about climate shifts, and she told us that we are 2.5 degrees F warmer than 60 years ago. In my mind, that's climate change.

"Add to that more cold-hardy root stock trees plus technology in the form of micro jet freeze protection systems, and we have an opportunity here in Georgia that didn't exist a generation ago."

TECHNOLOGY AND LAND VALUES

A hundred years ago, a farmer might be able to plant 4 or 5 acres in a day. Today, a 24-row planter can seed, on average, 250 to 300 acres, weather and ground conditions permitting. It's an astounding leap. Add in precision mapping, irrigation, robotics and even autonomous tractors, and the sky appears to be the limit to how productive one farmer can be.

Terry Griffin, Kansas State University economist, is certain the right technology is going to cause farmland to be rented and valued at different levels.

"We've not observed this consistently yet, but I believe farmland endowed with data, yield monitors and soil-sampling data, as well as amount of fertilizer applied at variable rates, will see its value impacted positively. Initially, these technologies will bring a premium. But, long term, there will just as likely be a penalty for not having the data and technology people come to expect."

Griffin pointed to cellular connectivity as a good example. "Large farmers are using iPads to see where their employees are and what is happening. They won't be as excited about buying or renting a parcel without cell tower access. They can't track what's going on. We are already seeing hesitation when it comes to committing to those fields," he explained.

In a twist on the idea that technology always brings more value, at times, two different technologies can work against each other, he noted.

Particularly in Kansas and Oklahoma, where it's become common to see wind turbines, oil rigs and even large areas of solar panels in the middle of fields, Griffin said those technologies create issues for farmers. Not only do they take field areas out of production, but they can be impossible for large equipment to maneuver around. He said it's led to adversarial negotiations about rental rates between landowners and farmers.

The value of technology to a farm won't stop at the edge of that field, he added. It's also about tracking data. "Blockchain is something we think more about now," Griffin explained. "Tracking how farm data is moved and knowing who manipulates it has a value. It's about chain of custody. This, where available, will be a factor in how we farm in the future and ultimately in the value of our operations."

Whatever value a farmer or rancher places on genetics, technology or climate shifts, the ability to adapt remains essential. All the technology in the world has limits when faced with an environment that, at least for now, is beyond human control.

"Because at the end of the day, rain is everything here," North Dakota's Keene said. "Like a lot of farmers, we work in a volatile environment. Farmers everywhere have some degree of the unknown. It doesn't matter if you have the best genetics or the best technology, no water equals no yield. So, farmers who survive the decades are always the ones who know how to respond to the bad times in a way that creates long-term profitability. There are no shortcuts."

Victoria Myers can be reached at vicki.myers@dtn.com

Follow her on X, formerly known as Twitter, @myersPF

(c) Copyright 2023 DTN, LLC. All rights reserved.