Farmland values on a rocket ship
The demand for productive agricultural land nationwide has accelerated at a pace not seen in years. As a result, real estate values for farmland, cropland, and pastureland increased over the last 12 months throughout much of the nation. Those are a few of the conclusions of a recently updated annual report from the Department of Agriculture.
According to the National Agricultural Statistical Survey (NASS) Land Values 2021 Summary, farm real estate values – a measurement of the value of all land and buildings on U.S. farms – averaged $3,380 per acre for 2021. That’s up $220 per acre (7%) from 2020. Cropland values averaged $4,420 per acre, an increase of $320 per acre, or 7.8%. Rangeland, the largest component from an acreage standpoint of the three, jumped 5.7%. The average value of an acre of pastureland came in at $1,480 per acre, an increase of $80 per acre.
These increases follow six years of flat or modest growth in all three land-use categories. According to USDA data, values haven’t risen at this pace since the period immediately following the fall-off in prices that occurred in the aftermath of the Great Recession.
Explosion in Prices
“We’ve seen an explosion in activity and prices,” says Texas A&M’s Charles Gilliland, a research economist with the Texas Real Estate Research Center. “Essentially, we’re looking at a tremendous increase in demand for all kinds of land. It’s been nothing short of amazing to watch what’s going on.”
Gilliland’s primary focus is on land activity in the Lone Star State. Texas farmland values increased by nearly 10%, and pastureland and cropland saw gains of approximately 7% and 6%, respectively. But his comments can be applied to numerous other states throughout the country as well.
For example, despite severe drought conditions on the West Coast, farmland values rose 9% in California and more than 10% in Oregon. A wide swath of states throughout the Midwest – led by Iowa, Kansas, Minnesota, Nebraska, and Wisconsin – witnessed across-the-board increases that in some cases reached double digits. Values also rose substantially in areas as diverse as the Rocky Mountain states of Colorado, Idaho, and Utah, and in Massachusetts and Vermont in the Northeast.
Still, the overall trend for the past year has been especially positive. Gilliland says there are several reasons for that, including government programs enacted in response to both COVID-19 pandemic and the trade war with China that have benefited farmers and other landowners. Low interest rates and high commodity prices have also buoyed land values. So has the migration of many city dwellers into more rural areas, an exodus that has boosted demand for transitional land and spurred new home construction.
“The primary complaints I hear from real estate brokers is they have plenty of people lined out the door looking for properties, but they don’t have enough inventory to sell them,” Gilliland says. “That’s the only reason the sales volume hasn’t increased also.”
Because of this demand, there has been an escalation in the sale of larger parcels that are then divided into smaller 10- and 20-acre tracts for individual resale.
“These smaller parcels are being bought up by people who want to move out of the bigger cities. That’s a COVID-driven thing,” says Mykel Taylor with the Auburn University Department of Agricultural Economics and Rural Sociology in Alabama. “People didn’t spend their money last year during COVID like they had been, and now they are bidding like crazy on these smaller tracts. That’s bringing up some of the values, even as the average acreage (per sale) is down.”
Some of the biggest gainers in farm real estate values:
- Massachusetts led the nation with a staggering 21.2% gain.
- Nebraska gained 11.1%.
- Kansas rose 10.5%.
- Oregon gained 10.3%.
- Vermont increased 9.9%.
The four-state Northern Plains region — Kansas, Nebraska, North Dakota, and South Dakota — witnessed the largest collective increase at 9.4%, while the Delta States of Arkansas, Louisiana, and Mississippi had the smallest growth at only 1.6%.
The Northern Plains also saw the biggest gain in cropland value, with Kansas and Nebraska both experiencing gains of nearly 14%. Once again, the Delta States lagged well behind in that category at 1.7%.
Iowa had the largest increase in pastureland value at 12.3%, followed by Wisconsin at 12.0%, Utah at 10.5%, Kansas at 9.5%, and Oregon at 9.2%. Wisconsin’s gains helped propel the Lake States region, which also includes Michigan and Minnesota, to a nationwide-best 9.8% improvement. Meanwhile, both the Delta and the five Appalachian states — Kentucky, North Carolina, Tennessee, Virginia, and West Virginia — hovered in the 2.0% range.
Despite these highs and lows, the principal takeaway is that land prices were up across the board, and in some sections of the country the increase was substantial. Analysts say there are no indications that this trend will end any time soon.
“There is a lot of optimism that we’re going to continue to see this kind of strength,” says Auburn’s Taylor. “Most ag appraisers are pretty bullish on the land market for the next couple of years, and I don’t see anything changing that dramatically.”
Texas A&M’s Gilliland agrees. “For the near future, this is probably sustainable, given the demand situation we have at this time with not a lot of inventory,” he says. “People are waiting for the music to stop, but there’s nothing on the horizon that we see at this point indicating that it’s going to happen anytime soon. It’s just an amazing time to be involved in the land market.”
Cary Estes is with The Land Report, the magazine of the American landowner. See LandReport.com.