Agricultural Land Market Stays Positive

BIRMINGHAM, Ala. (DTN) -- Land experts at Acres track and forecast national agricultural land price trends, while at the same time being able to drill down into county-level data affecting values and rental rates.

For Aaron Shew, data science director, an analysis of land values starts with the inherent productivity of any given parcel. He explained how, as well as other factors he examines.

-- PRODUCTIVITY. Shew said inherent productivity isn't tied to any farm-management decision but rather it's how a parcel of land ranks in terms of what it can produce.

Acres uses an A, B, C or D classification system, which goes best to worst in terms of productivity. Once a parcel is classified using regional soil scores from the USDA Natural Resources Conservation Service, Shew said they look for price and sale trends to tie to it.

From the beginning of 2020 to June 2023, there are some interesting trends, he noted. Class A land increased the most in price during late 2021 and the first half of 2022 largely because of competition among farmer buyers with strong balance sheets. But it was the first class to level out as the market softened in late 2022 and early 2023. Most of the land that changed hands in the last 12 months has been Class A. Class B and Class C land also showed steady increases over that time, but Shew explained the climb wasn't as fast, and as the land market softened, it didn't dip as much as the Class A land. Class D had the lowest number of participating buyers.

-- CLIMATE CHANGE. Shew believes climate change will play a role in influencing ag land values, but it's a slow-moving factor.

"With climate, the main thing to understand is that a lot of the shifts we observe don't necessarily affect land values as we see them right now across most of the country. It takes a long time." Shew said. "Take, for example, water regulations in California. If you're in a district that receives less water, that will equal lower land values. Conversely, places with higher water deliveries are well-positioned when we look at potential growth rates.

"But direct climate change impacts aren't really priced in yet. It may be years before we start to see things like the Sustainable Groundwater Management Act impact land prices as it is implemented over a long time frame. In other words, these effects tend to trickle in over time, rather than have a direct and drastic impact on land values in a short time frame."

In the Midwest, where traditional row-crop production ground has been primarily rain-fed, Shew said they are seeing more wells and irrigation infrastructures in some regions, and those are already being priced into the value of land when it sells.

"Looking at sales on Acres.com in Nebraska, for example, we can compare irrigated versus nonirrigated land and see substantial differences. So, whether we are talking about water through wells and irrigation, or rain-fed crops, water scarcity or plenty already makes a difference, and that will only become more pronounced as we move forward."

-- CONSUMER DEMAND. Other factors not as dominant but important to note, Shew said, are growing international markets and consumer demand for food, feed and fiber. That demand is going to continue to make ag land more valuable not only here but around the world, he said.

"We can't increase the supply of arable land," he said. "That is where I see genetics and technology affecting land values. It goes back to productivity because these things are the only way to increase supply."

Another international factor he pointed to are tariffs, which can affect commodity prices and thereby influence ag land values. He called this factor moderate in nature and more likely to impact cash rents. "Certainly, if we saw a drastic move where a lot of tariffs are back on the table, and commodity prices are affected, it may have a minor to moderate impact on land values," he said.

During the next 12 months, it's likely higher interest rates and higher costs of production will tighten many farm budgets and may slow expansion, he said. But, for cash buyers if an opportunity presents itself, interest rates won't be as important. They may, in fact, see opportunity in less competition at local land auctions. Prices, however, are likely to remain strong over the long run, even if the pace of increase slows in the year ahead.

"We see annual ag land appreciation on a national level at about 6%," Shew explained. "That's the number we look at when we talk about long-term growth trends, and I think today it's a good and a conservative estimate. Some areas, especially the Midwest, will probably exceed that."

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Editor's Note: In the November 2023 print version of this story in Progressive Farmer, Acres was incorrectly identified as AcreTraders. We apologize for any confusion this may have caused.

To see more DTN land-related stories:

" Agricultural Land Price Boosters," https://www.dtnpf.com/….

"Top 10 States for Ag Land Value," https://www.dtnpf.com/…

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

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