While the COVID-19 pandemic has affected many areas of the economy, farmland values may be one of the few assets that has fared well in the current economic downturn.
The same certainly can’t be said for other traditional investments, including stock markets, or other agriculture indicators, such as the ethanol sector, livestock prices and commodity prices.
The performance of farmland values throughout this pandemic is just another reason smart investors must consider including land in their investment portfolios. In this blog post, we will take a look at how COVID-19 has affected farmland values and why land has performed better than other common assets.
Farmland is a wise investment choice
Many savvy investors have known for a while now that farmland is a wise investment choice. For those who are able to acquire it, farmland often provides good returns.
Farmland delivers for investors in several ways. First, in terms of value increasing year over year, farmland is tough to beat. Farmland values have risen over 6% over the previous 50 years. Since 2014, farmland prices per acre have increased from $4,030 per acre to $4,100 per acre, according to data from the USDA.
Then there is the other benefit of cash renting yields. Investors can choose to lease their land to tenant farmers and then reap even more rewards from their investment.
Agricultural land also fares better than other types of assets and investments. According to Million Acres, returns from farmland have been less volatile than 10-year U.S. Treasury Bonds, S&P 500, Dow Jones REIT Index and gold.
Plus, just because stocks have a bad year doesn’t mean farmland will. In fact, there are many years in which farmland values still flourish while the markets underperform.
What affects farmland values?
Before we get to how land values are trending now, it’s important to have an understanding of what factors positively and negatively affect values.
The overall value of every parcel of land in part comes down to its own characteristics, such as soil type, soil quality, drainage, location, ease of access and past performance.
However, there are also some big picture issues that can affect farmland values. Those larger factors include weighty topics such as the global population’s ever-increasing need for food, water quality and water access, interest rates for loans, activity on Wall Street and state and federal regulations.
Together, all of these factors can positively or negatively affect farmland values.
Why are farmland values holding steady
So, as the pandemic continues, and many indicators seemingly signalling that farmland value might be headed toward a drop off, what’s the outlook? It may surprise you, but the outlook for land prices is actually fairly positive.
Earlier on in the coronavirus pandemic, around April, land values looked to be remaining steady. As is normal for that time of year, there weren’t as many sales in spring as there are in other seasons. Transactions were still occurring, though.
One farm real estate agent told Progressive Farmer in April that the land buyers are still considering purchases because of the fact that farmland is a long-term investment. Interest rates were also low – and continue to be. Plus, other investments are still in somewhat uncertain territory.
That has led farmland values to remain fairly steady in most regions.
Why farmland is so attractive to investors
In fact, as Successful Farming has reported, some investors have turned to farmland now more than other forms of investments. This is because, as we’ve already said, farmland is seen as a safer investment as it has seen year-to-year growth in value of three to four percent.
Couple that fact with the additional income an investor can receive by leasing land to a tenant farmer and you can begin to see why land has retained much of its value, even as COVID-19 stubbornly hangs around.
But what about the coming months?
The one thing we have learned these past few months is that situations change very rapidly during a pandemic. What does that mean for agriculture land values? Well, there are a few challenges that some experts have identified that could affect values in the coming months.
For example, if farm income levels struggle, then that could decrease the amount of interest potential buyers have for acquiring new land. That, of course, could have negative effects on land prices.
However, federal payments to farmers from the USDA may again help support incomes, therefore also helping support interest in purchasing ground.
In addition, if some farm operations do fall into stressful financial scenarios, then there could be more land put up for sale. If recent months provide any clue, then there could be enough interest from buyers.
Landowners could expect a slight decline in value
As the pandemic continues, many experts are providing cautious, more wary outlooks. A decline in farm incomes hasn’t helped the situation.
Successful Farming reports that ag lenders and land experts expect to see Iowa farmland drop in value by 2.3% by November. That’s even with a considered boost in corn and soybean prices.
Play the long game with land prices
Despite an expected slight decrease later this year, the outlook for land prices is stronger down the road.
Successful Farming reported that many bankers, farm management firms, realtors and appraisers in the agriculture industry do expect land values to increase in the medium and long-term. Much of this has to do with low interest rates, favorable crop yields and a tight supply in available land.
What’s your farmland worth?
Advantage Realty & Land Management can help you determine what your land and property are worth. Simply contact us to get a free estimate.
Should you decide to purchase or sell farmland, consider getting the Advantage that we can provide. From the beginning, we will be committed to delivering results for both buyers and sellers.
Advantage Realty & Land Management doesn’t just provide real estate services. Our clients can benefit from our land management and crop consulting services, as well.
Our mission is to provide excellent services and build lasting relationships with our clients. By working with us, you can get the Advantage.