What is in this article?:
- Farmland Prices Have More Stability Than Recent Prices May Show
- Location and owner impact
Location and owner impact
As realtors talk about “location,” the USDA economists report that is true for farmland, particularly when higher values are show to be closer to farm markets. Since transportation costs increase with distance, the shorter distances to an elevator or other commodity terminal will generate a higher land value. In recent years the establishment of a community ethanol plant will raise the price of corn, and that raises land values in the region. Additionally, some locations have seen higher land values because of the level of farm program payments. “Payments that are certain might be accounted for differently than payments that are realized only under low prices, yields or revenue. Production flexibility contract payments – direct payments to producers with “base acreage” until the program was replaced in 2002 – have been shown to increase cropland values.” And they add, “There are considerable regional differences in the ratio of payments to cropland values. Much of this regional diversity is likely based on differences in what crops are, and have historically been, grown.”
Another dynamic pushing up farm real estate values is the proximity to urban areas. “To acquire land for nonagricultural purposes, developers typically must bid higher than the agricultural production value of the land. As a result, even a limited number of conversions of farmland to urban uses can lead to generally higher farmland values in areas influenced by urban demand for land.”
When researching who owns farmland, USDA found the most recent estimate was there are 2.2 million land owners, a number that will have an impact on farm operator decision-making, such a production decisions, technology adoption and conservation practices. Over the period from 1964 to 2007 the amount of farmland that is rented ranged from 34% to 43%, but that has remained below 40% in recent years. While USDA has a good perspective of farm operators, much less is known about farm owners, particularly those who are not involved in operations. “In 1999, 4% of non-operator landlords owned at least 1,000 acres of farmland, and collectively they controlled 44% of all acreage owned by non-operator landlords. However, about 68% of non-operator landlords owned less than 180 acres each; these landlords owned 18% of the land owned by non-operator landlords.”
Because of the attractiveness of U.S. farmland to foreign nations needing food, questions frequently arise about foreign ownership, a statistic that has changed relatively little over time. As of February 2009, only 1.7% of privately owned land in farms was owned by foreign interests. The majority of that is timberland owned by logging companies with ownership in either Canada or the Netherlands.
In their conclusion, the USDA economists address the question of land price stability and farm policy decisions. They say, “Coupled with questions about the likely stability of farmland values are questions about whether active farmers benefited from the recent increases in those values. With about 40% of farmland being rented, and with more than 30% being rented from non-operating landowners in several regions (largely the Midwest and Pacific), it is clear that non-operating landowners play a significant role in U.S. agriculture. Not only do non-operators reap some of the benefits (and bear some of the risks) of changes in farmland values, land owned by non-operators is managed somewhat differently – for example, such lands may be less likely to be enrolled in conservation programs.”
Farmland values have risen rapidly in the past year, representing significant asset values for owners and questions about rental rates, which have not risen as fast. Among the reasons for higher values are farm commodity prices, relationship to markets, including new markets, and government policies. Stability of farmland values will depend on demands of non-operating landowners, plus the forces working on commodity values.