Farmland values have not changed much throughout the first six months of 2019.
However, looking ahead, there are several factors outside of demand and the overall health of the agriculture economy that will impact farmland values. Some of those factors you may be aware of, while others could surprise you.
First Mid Ag Services Vice President David Klein shared the seven factors he’s keeping an eye on at First Mid Ag Services Field Day in November. AgriNews reported Klein’s discussion of these factors, but we wanted to pass along his insights and provide some additional information.
1. Next generation enterprise systems
The first factor affecting farmland values that Klein mentioned in his talk focuses on what he calls “next generation enterprise systems.” That would be new and emerging trends that farmers are beginning to look into and find how they can add it to their business’s structure.
Klein said his firm is receiving more frequent calls about farmers who are interested in trends such as organic farming, industrial hemp production, livestock and land combinations for large-scale hog confinements, wind energy and solar energy, too.
Klein also pointed to a “next generation” issue of “Beyond Meat” development, which produces patties derived from plants, not meat.
All of these new trends would require farmers to either transition land they already own to fit those purposes or acquire new land. That’s where farmland values come into play and why these trends should be tracked as the develop and further emerge into the mainstream.
For example, a consumer desire for more organic products is driving farmer interest in producing those products. In the U.S., the market for organic goods passed $45 billion in 2017. In response to that growth that has been building up over time, organic farm acreage in the country increased by 20% from 2011 to 2018.
2. Farmland and other alternative investments
Farmland has long been known to be one of the better forms of investment outside of the stock markets. Both carry their own set of risks, but farmland has long been lauded for providing more consistent annual returns. When the next financial crisis rolls around, farmland and those who have invested their money in it could experience more protection.
However, as Klein mentioned in his talk, the stock market has bounced back from the lulls of the last recession. People are starting to pay attention to that resurgence, which could lead to more interest in farmland as it has always been a popular alternative investment.
3. State government policy
State governments are always shifting their policies. However, in some states, such as Iowa, there are policies in place that could provide an advantage to buyers looking for farmland.
Iowa is one of eight states in the U.S. that prohibits foreign ownership of agricultural land. Minnesota, Missouri, Nebraska, North Dakota, Oklahoma, South Dakota and Wisconsin are the other states. Iowa’s law does not allow nonresident aliens, foreign businesses or foreign governments to own agricultural land in the state.
That means that in Iowa and those other seven states, there are fewer buyers to compete with when considering making a land purchase. Not all Midwest farmers have that advantage.
The other state policy to always keep an eye on is property tax law, something farmers and their partners must always be knowledgeable of.
4. Farmland market supply
The supply of farmland on the market has been tight. Klein, as well as many other in the field, have take note of this as a significant reason for why prices have remained stable for the most part. When not much land is available for sale, the market is going to be tighter and prices will be a little more protected.
Klein adds to this explanation that an increase in public auctions in 2018, up 4% to 39%, compared to private treaties, down 3% to 46%, likely will continue unless prices start to climb again. If they do, he says auctions could begin to increase in number over the next several years.
5. Interest rates on the rise
Falling interest rates are a positive for land values, allowing for lower interest rates on borrowing, operating loans and land loans. Klein says keeping an eye on these rates is the “number one concern” his firm hears from agriculture professionals.
That’s because, historically, higher interest rates tend to drive down farmland values. Lenders take a look at land values when they are figuring out a borrower’s risk, which is a concern for farmers looking to take out loans. Lower land values mean their primary asset is not worth as much.
So, always be sure to keep an eye on what is being said about interest rates as we look to the future.
6. Farm income
Farm income can be boiled down to acres multiplied by production and then combined with input costs and grain prices, as AgriNews states in its article. Then there are matters involving the federal government and its policies on ethanol, trade, tariffs and farm program payments.
Those program payments are helping with income compared to a year ago, as is a higher crop insurance price for corn.
Looking forward, Klein said he expects corn to stay put “in the driver’s seat” until a trade deal is worked out with China. It’s also going to play a large role in determining decisions on crop insurance, income and planting, he adds.
7. End of cycle economics
The final factor Klein cites deals with what has been an incredibly long economic expansion – the longest on record since 1945. With a low unemployment rate, Klein said he expects to see more pressure from inflation.
If the inflation increases, Klein believes farmland values could increase with it. He also offers the reminder that farmland is a hedge against inflation.
Keep up with the latest trends
For more information, you can read the entire article from AgriNews. You can also follow our blog for updates on the latest news and trends affecting farming and the agriculture industry.