Our research says otherwise. Sure, land prices have been dropping noticeably in a handful of Midwestern states, but not nearly to the degree corn, soybean, and wheat prices have dropped from their strong levels earlier this decade.

Who’s Propping Up Farmland Prices?

In short, many groups other than the small-to-mid-size family farmer are contributing to the strong demand for farmland resulting in its steady price appreciation. In the last ten years or so, new types of farmland buyers are arriving on the scene, but rarely putting on a pair of boots! 

We found no single over-riding buying motivation. Instead, there are a handful of important players creating this spurt in demand.

Foreign Investors 

From the USDA’s 2014 database it is estimated that foreign owned U.S. farmland rose to $42.7 billion and 27 million acres from less than half those amounts ten years earlier. Foreign corporations are also purchasing U.S. food producers for our technology and to support their national food security (such as the Chinese firm, WH Group LTD’s 2013 purchase of Smithfield Foods, including 146,000 acres of farmland). The main areas of investment are in our corn belt, the southeastern U.S., Texas, and California and the top countries investing are Canada, The Netherlands, China, Germany, Japan, France, and Saudi Arabia.

Financial Firms

For several years now, insurance companies, pension funds, real estate investment trusts (REIT), and various large funds have added timber and farm land to their portfolios. As an asset class, ag land is somewhat unique due to its income potential, inherent value as a hard asset, and predictable appreciation. Over many years, ag land has proven to help shield an investor against both inflation and most recessions. 

In addition, various third-party investment management firms focus on obtaining and managing timber or farm land properties across different commodity groups and geography. Their financial structure allows many smaller investors to participate in land ownership when it might not otherwise be feasible. 

Farms Seek to Grow Larger

The USDA reports production has been shifting to larger farms for many years, at the expense of small farms. By the end of 2016, there were 8,000 fewer small farms than the year before. At last count, the median crop farm size has doubled from 589 acres in 1982 to 1,234 acres. 

Farms producing at least $1 million annually now account for half of all farm output, up from one-third two decades ago. Thankfully, 90 percent of these million-dollar producers are still family-run farms.

It’s also clear larger farms have better profit margins. They have more buying power, can adopt new technology more readily, and can leverage expensive equipment across more acres. Adding more land to existing farms through a purchase or rent transaction keeps demand strong. 

What else adds to price appreciation? A shrinking supply. It’s generally believed that about 350,000 acres of farm and ranch land are lost each year due to urban sprawl and competing demands for the “highest and best use” for beautiful farmland. 

Farmers Add Value to their Land

Many other common improvements will drive up the value of the land. In our evaluations we often see things like new irrigation systems, laser leveling, suitability for wind, solar, and wireless installations, new nearby transportation options, and sharp increases in the value of adjacent tracts driving up value.

Finally, land values increase when the land is made more productive. Examples include converting timber or diseased permanent plantings to valuable crop land or pasture. The farmer’s most satisfying role in this whole land value equation is to build a solid track record of productive yields. Now, if we could only have some control over those commodity prices…

Making It All Work for You

It is important to know how you can and should benefit from your land—your most valuable and solid asset. So, if that plan requires some longer term investing and a sizable chunk of cash you don’t see coming in this season or the next, AgAmerica Lending can help. Let us show you what a knowledgeable, ag-focused, relationship-driven lender can do for the financial future of your operation. 

Our team of experts is standing by, ready to get to know you and your operation. We strive to provide our clients with unique options for manageable, responsible debt and will work closely with you to analyze your operational goals and financial needs and provide financing solutions tailored to your operation.