Times may be changing, but farmland values have taken scant notice. They continue to hold steady, underpinning an agricultural economy that has had more than its share of bumps during the last year.
While there are certainly regional and quality variations when it comes to land markets and prices, a snapshot of average values is downright heady. Between 2010 and 2020, prices for cropland climbed from $2,700 to $4,100 per acre. That is based on the most recent USDA annual Land Values Summary. Pasture values haven't seen that same level of appreciation but remain positive, going from $1,060 to $1,400 per acre during that period.
Despite all of that good news and a continued positive outlook for agricultural land, what many analysts and brokers want to talk about right now is that old friend recently come back into vogue: the recreational land market. Why the strong interest now? Joey Bellington, land specialist with Whitetail Properties, in Texas, says people want to get out of the cities, and they are looking for a retreat.
"Like everyone else, our land market saw a lull in March, but once people got their heads wrapped around what was going on, there was this explosion of interest in our listings," he says. "People tell us they want a place to get away. Ranching is a byproduct of that, but the main driving factor is the desire for a recreational retreat that is also a good investment -- without the volatility of the stock market."
Bellington, who sells largely in the southern part of the state, notes a "buyer" is often comprised of multiple individuals. But, these aren't investment groups like real estate investment trusts (REITs), nor are they international buyers.
"Most of the people we see are from within the state of Texas. We categorize buyers as farmers, ranchers, people in the hunting industry and those coming out of our major urban areas. That last group may not want to live on a ranch, so they have a manager there to run the place and take care of it. They come out and enjoy it when they have the time."
He adds in other segments of the land business, where acres are tied to the economics of an operation, it can often come down to a math equation as to price. Not so for recreational buyers. "For a lot of my buyers, this is more emotional. It's a luxury purchase. They want it, and now is the time. They don't talk about rate of return; it's more about being a legacy buyer."
That mindset is not, as one might suspect, just a Texas thing. It is being seen in the heart of corn country, too. Ray Brownfield, owner of Land Pro, a farm brokerage and management company, based in Illinois, says while he primarily works with agricultural land, recreational land has gotten more of his attention lately.
"It really does deserve a mention. It's become a very interesting market for us due, we believe, to COVID-19 and social unrest in many of our cities. People here are looking for 5- to 20-acre parcels at prices in the $3,000- to $6,000-per-acre range. If the land has income opportunities attached to it, like CRP or rental income, it tends to be in the higher end of that range. This is a market we think will continue to grow in the future."
Prices for recreational-type ground run the gamut. Progressive Farmer's Landwatch column, a monthly reporting of sales prices from across the country, has followed an upturn in recreational land sales through the year. Prices seen in this forum included sales out of Tennessee's Hardin County, where 312 acres, divided into seven tracts and featuring property ideal for horses and hunting, sold at auction for an average of $1,770 per acre. Out of Missouri, a Daviess County sale featured a 20-acre pasture property sold as a homesite for $80,000, or $4,000 per acre. And, in Texas' Stonewall County, the Caloosa Ranch, known for its hunting operations, sold after just four months on the market for $13.2 million. The ranch totaled 14,500 acres and included a five-bedroom lodge and other amenities for hunters. The average price across that Texas-sized property was around $910 per acre.
TRADITION MEETS TECH
In the more traditional agricultural land markets, a positive outlook continues to reign. Iowa's Dennis Reyman says land values remain tied largely to corn prices, but there are other factors at work that have been noted positives.
A partner at Stalcup Ag Service and current president-elect of the American Society of Farm Managers and Rural Appraisers (ASFMRA), Reyman is based in Storm Lake. Two factors he believes that have played key roles in the state's strong history of outstanding land values are livestock operations and good adaptation of technology by those in the farming community.
Reyman notes counties in Iowa with strong livestock production have fared especially well during the last 10 years when it comes to land values.
"If you look at those counties, they have over 100 years worth of manure going onto much of that farmland. It's incredibly rich soil. Even if it's the same type of soil as in a northwestern county, it's been so fortified over the years, it's like a supersoil, and it produces better, more consistent crops. There's quite a bit of competition for this land when it comes on the market, and I believe it's helped our state average."
Another area most people don't bring up when discussing reasons for strong land values is one Reyman believes is particularly key: technology. He stresses good adaptation of technology across all areas of agriculture has made a measurable difference in the value of land in his state and others.
"Twenty-five years ago, when yield monitors first came out, we said then this is going to sell a lot of drainage tile in Iowa. And, it has," he explains. "People were able to see real data that allowed them to quantify losses in those areas where drainage was an issue. Large tile projects have become commonplace. I see people buy 160 acres and grid-tile it all right off the bat, which is costly at $500 to $1,000 per acre. It's a substantial investment, but the return is quite good."
Beyond this, Reyman says many producers now use information blocks within their own fields, where they program equipment to vary population rates or some other aspect of production to put numbers to what they think may improve management.
"This is random enough that it's not just a test plot but a real-world trial in the middle of someone's field," he continues. "It's this sort of innovation that helps our farmers improve management year over year, and we see a 1 to 2.5% increase on average corn yields as a result.
"Add to that genetic improvements and advancements in farm equipment, and the precision with which we are able to farm today is unbelievable. It used to be 200 bushels of corn an acre was a big deal; now that's sort of blasé."
All of this has contributed to what Reyman reports is a consistent 4 to 6% appreciation in cropland prices (100-year average), with today bringing an average per-acre value of $7,070. Tying this to the state's Corn Suitability Rating (CSR2), he notes land averages $100 to $120 per point.
WATER AND DIVERSIFICATION
In the Southeast, Gene Cook follows the southwestern Georgia land market, where he notes irrigated land values have held well, especially for producers with peanut or seed cotton bases. The area is increasingly seeing diversification, including vegetable and potato production. Cook says good, irrigated cropland today ranges between $5,500 and $7,000 per acre here.
There are some big-name investors in this market, notes Cook, head of Gene Cook and Associates, out of Donalsonville. Groups including John Hancock Financial and UBS Group Ag, out of Switzerland, hold thousands of acres in the state. One French family, Cook reports, holds about 6,000 acres, and they have introduced olives to the region.
Amid all of this innovation and investment, however, he believes there is a huge weight pulling on ag land values here tied to a government moratorium on irrigation and wells.
"We have 16 southwestern Georgia counties where you are not allowed to put in a new irrigation well to add farm acres," Cook explains. "The Department of Natural Resources [DNR] is enforcing this, and our governor has issued an executive order saying the DNR should also check permitted acres for irrigation against what is actually in the field and force compliance. That is an issue, because without water in this part of Georgia, you aren't going to do much in the way of agriculture."
What the next 12 months hold for landowners is hard for anyone to predict, but some of the country's top land brokers and analysts are cautiously optimistic.
Scott Steffes, head of the Steffes Group, which operates in seven states, including Iowa, Minnesota, North Dakota, South Dakota and Wisconsin, says he is closely watching commodity prices, crop-production levels and interest rates. He believes these three indicators point to where land prices will head.
Overall, Steffes uses words like "steady" and "confident" to talk about farmland, noting this market has "a lot of good, strong, committed owners." "In our agricultural markets, the predominant buyer is still a farmer, and the only weaknesses we see are on some of the marginal lands, which is where you tend to see changes in market conditions first," he says.
Iowa's Reyman says his intel leads him to believe better times are ahead. He reported in August that weekly corn auctions in China were bringing the equivalent of $7.40 per bushel (USD) for corn.
"Understand what is driving that," he says. "Government policy has been to hold a big inventory of corn, but they reversed that and reduced inventory. What they have is in bad shape in terms of quality, we hear. We saw African swine fever devastate their hog population, and now they are rebuilding, which means demand for feed is rising. I believe they will be buying corn from us, and I see that as a market positive."
Reyman adds interest rates will be a major factor to watch moving forward. Should rates climb, there would naturally follow a negative impact on land prices at some point.
In Texas, Bellington says the biggest limitation on land sales continues to be water availability. "That is just very critical in a market like ours, whatever you are buying land for. If you have to rely on community water wells, that is a deterrent to some buyers."
He adds he sees a lot of 1031 exchange money in the agricultural land market, a great tool to "keep the market churning." Under the IRS' 1031 exchange rules, anyone selling business or investment property may postpone paying taxes on gains from the sale by reinvesting the money in similar property, a like-kind exchange. The IRS allows 45 days from the time a property is sold to identify potential replacements.
Bellington adds if societal problems continue, and interest rates remain low, more potential buyers will likely be considering land purchases in coming months.
"By far the biggest question will be what interest rates do. But, that won't impact our cash buyers, and we are seeing a fair number of those."
Randy Dickhut, senior vice president of real estate operations for Farmers National Co., says despite an industrywide slowdown, they reported higher sales volumes at the beginning of their fiscal year. A mix of factors is pulling the market in opposite directions today, he says, and only time will tell whether the supply and demand equation will be tipped one way or the other.
Positive influencers continue to be a low supply of available land for sale and interest rates. But, Dickhut counters those positives with depressed farm incomes and declines in working capital. "It's too soon to accurately answer what's next for the land market except to say that agricultural land will continue to be bought and sold. Land passing to the next generation is a constant. Decisions made by those inheritors of land, producers, lenders, legislators and investors will, over the coming months, provide the answers we are looking for as to what's next for land values."
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