#647 – Who Really Owns American Farmland?

Who Really Owns American Farmland?

As our loyal readers know, we at Agracel have a real affinity for farmers and what they stand for (Agracel history). We refer to the most current Iowa State University Farmland Value Survey to see information on general land value trends, geographical land price relationships, and factors influencing the Iowa land market. A recent report from The New Food Economy entitled Who Really Owns American Farmland? caught our eye. The report pulled information from the Iowa survey, along with other sources.

Below are some key, albeit some disturbing, facts from the report.

• If you wanted to buy Iowa farmland in 1970, the average going price was $419 per acre, according to the Iowa State University Farmland Value Survey. By 2016, the price per acre was $7,183—a drop from the 2013 peak of $8,716, but still a colossal increase of 1,600 percent. Farmland, the Economist announced in 2014, had outperformed most asset classes for the previous 20 years, delivering average U.S. returns of 12 percent a year with low volatility.
• Institutional investors have long balanced their portfolios by putting part of their money in natural resources—goldmines and coal fields and forests. But farmland, which was largely held by small property owners and difficult for the financial industry to access, was largely off the table. That changed around 2007. In the wake of the stock market collapse, institutional investors were eager to find new places to park money that might prove more robust than the complex financial instruments that collapsed when the housing bubble burst. What they found was a market ready for change. The owners of farms were aging, and many were looking for a way to get cash out of the enterprises they’d built.
• Today, the United States Department of Agriculture (USDA) estimates that at least 30 percent of American farmland is owned by non-operators who lease it out to farmers. And with a median age for the American farmer of about 55, it is anticipated that in the next five years, some 92,000,000 acres (the size of Montana!) will change hands, with much of it passing to investors rather than traditional farmers.
• Three big factors have contributed to the rapid increase in the prices paid for farmland—which is usually defined to include grazing land and forests: low interest rates, institutional investors, and foreign investors.
• Foreign buyers already own 25 million acres of U.S. land. That’s about the size of Virginia.
• States like Iowa have banned the sale of farmland to foreign buyers and others have laws that limit the number of acres that can legally be sold, but it can be quite tricky to tell who is doing the buying. Foreign buyers can hide their identity by creating an American corporation, or buying through a U.S. majority-owned subsidiary.
• The dangers of high land prices are obvious—especially for younger farmers who are trying to get established and farmers who want to steer away from Big Ag approaches. The dangers of ownership by large corporations and foreign buyers are equally clear. But there is another danger to high, rapidly rising land prices—one that brings to mind the great real estate bust of 2007: a bubble. Bubbles can be devastating, leaving small land owners underwater on their mortgages and depriving them of the crucial collateral they need to get loans on operating expenses.

Agriculture, like all industries, is in a constant state of flux.  Exacerbating it though, is the demography of the ownership, which is rapidly aging.  How the transformation to the next generation of owners takes place, will have long term ramifications.  It is an issue near and dear to us and we will continue to watch it going forward.