With farmland values rising consistently over the past 10 years, and exploding in some us regions such as the corn belt and northern plains over the past five, this investment class has generated considerable interest, to say the least.
There is a lot of speculation about where land values go from here. Given the diverse complexity of the factors driving these markets, we plan to feature in-depth regional and state analysis in upcoming magazines. With this inaugural issue, we will introduce you to some of our future contributors. We’ve asked them to provide a general perspective of current trends and conditions in their market places.
“The buyers in the market place in my opinion are stronger than ever. There is more pressure from not only funds, but now private investors as well, and don’t forget about the farmers. They are staying away from the upper Midwest as it still does not pencil at those numbers. The High Plains area is hit or miss. This area depends on water and soils with water being the number one factor. The Delta is still in demand; however, finding land there is very hard. There has been in increase in demand in the Southeast. South Carolina, Georgia and Florida offer longer growing seasons with the capability of growing more diverse crops. The vegetable market in these areas offers an added benefit.”
Linda Niebur — Mason Morse Ranch Company
Linda is a Broker who is familiar with crop production, agricultural leases, water rights, conservation easements and mineral rights and whose past experiences greatly enhance her knowledge of land transaction. Her affiliations include The Colorado Association of Realtors, The National Association of Realtors, and The Realtor Land Institute (RLI).
Upper Central Plains Perspective
“In the upper Central Plains region properties that have sold are showing a modest pullback based on the current agricultural economics and the price of commodities. These farms may not be best in class however. The highly productive farmlands are in very high demand and in limited supply. The values seem to be holding for this type of asset and may in some areas still be finding a premium. Each local and regional market has its own unique variables. Working with an RLI Land Broker is essential in determining how to value the land’s productive attributes accurately.”
Bart Miller — Mason Morse Ranch Company
Bart is Managing Broker of Mason Morse Ranch Company and one of the firm’s principal owners, overseeing its daily business operations and licensing. Since 1998, he has managed the company’s real estate land sales marketing efforts helping grow the company’s reach across the United States. He is currently licensed in Colorado, Montana, Wyoming, New Mexico, Nebraska, South Dakota, Kansas, Oregon, Washington and North Carolina. He is also the President the Colorado RLI Chapter and an RLI Accredited Land Consultant.
Pacific Northwest Perspective
“The past few years have seen a run-up in prices for premium farmland. We have seen land prices emerge from $5000 ± in 2006 and 2007 to reach in excess of $10,000. That is a doubling in about eight–10 years. Never in the history of land sales have we seen farm prices escalate so rapidly. Usually a rapid price jump in such a short period of time also claims its victims with a fall-out; however, this time prices seem to be holding strong and stable.
Buyers are actively courting potential sellers. The pool of qualified buyers greatly outweighs the available properties; however, they are not settling for ‘whatever is out there.’ Buyers are being picky and have their search parameters set to closely align any new purchase to fit right into the existing operation. If there is a potential for large acreage tract, investor-buyers are immediately on the scene and working to close a deal.
The primary property transactions are for working farms. These may be irrigated or dry cropland; however, they are ‘income producing.’ Non-crop acreage and open range land is the bottom of the wish list in the current situation. Recreational property buyers are almost non-existent. Unlike the era of “dot.com” income, that “pretty place” in the foothills may sit on the market for several years until the right buyer with deep pockets comes along. Lenders are not financing idle land and owners are reluctant to carry the contract these days. Chapter 12 bankruptcy from the 80s is still fresh in the minds of many.
The current shortage of quality farm land will continue to maintain high land prices. The world food supply compared to the increasing population is becoming more apparent every day. Beginning with the world Olympics in Beijing, the people got a taste of affluence from the outside world. With affluence comes better diet. With better diet cultures tend to include more protein and the protein comes from mostly pork or poultry products. And there are limited regions in the world that grow adequate feed stocks for the protein sources. If one of these regions — Ukraine, United States, Argentina, Brazil or Australia — has a crop failure, it puts a tremendous strain on the world feed supply; hence the food supply is compromised either by supply or price. As the population of the world increases there is reason to believe that prices of both food and land will remain strong for an indeterminate period of time. Couple this with world turmoil and the continued poverty, I do not foresee much deviation in my lifetime.
Land prices for crop ground vary by location and usage. For dry cropland in the Palouse region of eastern Washington prices will range from $2,000 to as high as $3,500 per acre. This region has adequate rainfall for annual cropping rather than alternate fallow years as is found further west in the Ritzville-Lind to Prescott-Walla Walla areas. Irrigated lands in the Columbia Basin are part of a Bureau of Reclamation water project with permanent water rights. They may not be severed from the land, and there is a limitation of ownership for all Bureau of Reclamation water acres. Parcels tend to run in the 100- to 160-acre sizes, with farmers typically owning several contiguous or nearby parcels.
For lands along the Snake and Columbia Rivers, there are several larger well or river pumping project farms. These are certificated water projects where water transfers are available, though not common. With river and well projects, the land is usually larger acreages (in excess of 500 acres and some as large as several thousand acres) and not subject to acreage limitation for ownership. When they surface for sale, it is likely that investors are the buyer for them.
The Pacific Northwest is unique in the farming game. There are over 80 different crops grown across the region and the capacity for more if there were users for them. Everything from forage to grains, vegetables from asparagus to zucchini, fruits from apples to wine grapes and a wide variety of nuts and berries, are all part of the repertoire of crops. Many of the crops are either the only state where they are grown commercially or they are number one in the state compared to other states. Most are in the top 10 for state production.
Although the financial meltdown of 2008 has hit the commercial side of land sales and values, the market is correcting itself and we are again seeing some sales and new commercial developments taking hold. Foreign buyers — many from the Pacific Rim countries — are actively searching and purchasing properties in the western United States. Much of this is to add the manufacturing and processing to their current holdings. Buckwheat, for example, is a staple in their diet. Much of it is grown in the Northwest and shipped overseas. By building the factory stateside, they eliminate the shipping of the raw product and finish out the breakfast cereals, flours, etc., on US soils and only send the finished product across the ocean.
Much of the commercial development land in the Northwest is held by cities and port districts. They often subordinate or provide tax breaks and incentives for industry to locate on their sites. This does not always translate to higher land values, but it does increase the tax base for the community. This is the stabilizing factor here.
Residential land and lot sales are again aggressive in the Northwest market. Single family and multi-family construction is active. With employment rates dropping, new jobs being created and a new sweep of qualified first-time buyers in the market for home purchases, builders and lenders are ramping up with new construction in both areas. The general real estate market in the Northwest has re-awakened and is not only back where it was before the crash in 2008, but has improved beyond that point. If I were to give an estimate, I would have to say that, in general, real estate has gained about 10–12% over the pre-crash values. That is all real estate except pre-owned commercial property (which is still recovering).”
Flo Sayre — Farmers National Company
Flo is the Designated Broker Managing Broker for Farmers National Company in the Pasco, Washington office where she serves most of eastern, central, and southeast Washington for agricultural and investment property. She is not limited to the local MLS, but works with other ag investment brokers to help locate property for her clients. She holds the RLI’s Accredited Land Consultant designation and currently serves as President of the RLI Pacific Northwest Chapter.
“The Iowa Chapter of Realtors Land Institute has conducted a land value survey twice each year since 1978 in order to provide its members, financial loan officers and members of the general public an estimate of the value of farm land around the state of Iowa.
Data that is collected in late February and late August from real estate professionals and others in different areas of agriculture is processed to show the estimated values of five different land classifications in nine different sections of the state. The data is then summarized to provide an overall state average value of those same land classifications.
The summary is compared to the previous survey summary to provide a total percentage increase or decrease of value from that last summary. The survey’s major use is developing an educated trend line of agricultural land values, where those values have been and in conjunction with known economic conditions where those values might be headed.
The spring 2014 survey indicated a slight downward trend in values over the Fall 2013 survey, the first down market since 2009. Those decreases were related mostly to the decreased value of commodities, namely corn and soybeans from summer 2013 to early 2014. Values have been steady since the report was released on March 27, partly due to the leveling off of commodity prices, indicating that buyers of agricultural land were still optimistic for future growth in ag revenues.”
Terry Pauling — Peoples Company
Terry manages Peoples Company’s office in Indianola and is a licensed Real Estate Broker in Iowa, Illinois and Missouri and is licensed to sell crop insurance in the state of Iowa. He is President of the RLI Iowa Chapter, a member of the Peoples Company Board of Directors, the Des Moines Area Association of REALTORS®, the National Association of REALTORS®, and the Iowa Association of REALTORS®.
Anyone who is interested in the summary can visit the Iowa Chapter’s website to view reports posted since 2003.
“Because of the Midwest drought of 2012, we saw land values spike very rapidly due to record breaking corn prices nearing $8/bushel for corn harvested right out of the field and delivered to the nearest grain terminal. In addition, many farmers had a good insurance program to cover the reduced yields, so in reality there was more expendable income than we have seen for a long time. When farmers have excess income they catch up on machinery purchases, usually buy a new pick up truck, maybe put up a new machine shed, and for sure look for more land to add to their current farming operation. Auctions have always been a good way to sell land in a demand market, and certainly during 2013 to recently much of the land did sell by auction, and most to farmers who were willing to competitively bid for what they wanted. It was not unusual to see a nice Class A farm sell on auction for a low of $12,000 per acre up to $16,000 per acre. Even the lesser quality B soil farms were bringing a premium of $9,000 to $11,000 per acre. That market has begun to change some. We are now seeing more farms being offered by private treaty, particularly those of less quality.
With corn prices now in the mid $4/bushel range, more market uncertainty due to the Chinese actions regarding importing of United States GMO distiller’s dried grains, EPA possible restrictions regarding ethanol, and what could be a record crop, the buyers have become much more “picky,” because of bottom line uncertainty. There still is money in the market for the right farm. To command a premium price, the farm must be of Class A soils, mostly all tillable, well drained, regular shaped, and preferably no buildings. We have noticed at recent auctions even this class of soil farms may be down $500–$1,000 per acre compared to earlier in 2013. The Class B soils may be down even more, however they did become hyper inflated for a short period of time due to cash demand. There has been more of a market correction with these kinds of farms due to greater production risk factors.
However it is my belief there will always be some land market uncertainty with corresponding market value changes. But most, if not all of us, in the land industry believe for the long-term the purchase of land will always be a solid investment. The USDA has predicted by 2025 the Chinese will most likely increase their import of corn by 40 percent to feed their growing livestock industry. That is roughly one half of our annual corn production. Whether the United States is the sole provider of corn and soybeans to China and other developing countries or not, we will always be a major source, thus it is most likely we will not see a severe erosion of commodity prices, which would directly impact land values.
Beside farmer buyers for land, we have for many years have seen investment funds as well as individual investors purchase land. Within the last 18 months, I have noticed numbers of new funds, investment groups and individual investors seeking land purchases. They are looking at a hold of at least 10 years, and maybe more, because of the relatively stable Return On Investment (ROI), and annual appreciation factor. It is not unusual to experience a 3.6–3.8 percent net/net ROI along with an average appreciation factor of 7–8 percent and depending upon certain factors can appreciate at even a greater rate in some years.
So all in all I see a really stable real estate market in the Midwest, with some weakening in some areas, but I do not see a major decline and in fact would predict a steady to moderate incline over the many years to come. To repeat a tired but true Mark Twain statement, ‘They just ain’t makin’ any more of it.’”
Ray Brownfield — Land Pro, LLC
Ray has worked in farm management and real estate brokerage for Continental Illinois Bank and Trust Company, First National Bank of Peoria, The Northern Trust and Capital Agricultural Property Services, Inc. Ray served as the President of the RLI during 2012 and holds its Accredited Land Consultant designation, he is also Chair of RLI’s Land Education Foundation.
Texas Panhandle Perspective
“Our company currently services an area of 150 miles of Amarillo, Texas. For the past two years, the drought has had a significant influence with the cattle people and dryland farms. Without forage, the cow-calf producers were forced to relocate or liquidate their cow herds. Land values for cattle ranches have been stable with low activity.
Dryland farms have had very little production with the drought’s influence. Dryland values have been stable with limited sales. The influence of USDA’s current farm bill will focus more on Crop Insurance protection. With the past four years of drought, the producers’ yields have suffered and the value of the insurance protection has decreased.
The largest part of our business is irrigated farms. The value of these farms is driven by the volume of irrigation water. Yields have been very good and crop prices have provided very good returns to the owners and farmers. This market is strong with sales to buyers from across America.
Banks are aggressive and have adequate capital available. Although property taxes have increased, they are significantly cheaper than other farm states. The region is a grain deficit area with the many cattle feedlots, dairies and hog companies in the region.”
George Clift — Clift Land Brokers
George is a Broker and an Accredited Land Consultant. He is licensed in Texas, Oklahoma, Colorado, Kansas, and Nebraska and is a member of the RLI, the National Association of Realtors, the Texas Association of Realtors, Oklahoma Association of Realtors® and the Amarillo Association of Realtors. George is currently serving as the 2014 President for the National RLI. George received the Accredited Land Consultant Advanced designation in February 2014. He is only one of 19 Realtors nationwide to have received this honor.