How Did We Get Here? Where Is It Going?

What an incredible few years we’ve experienced in the agricultural land market, with record land sales and value increases that have never been seen before in history.

Landowners have either witnessed sales at record values or realized gains in the value of their farmland as an asset. Let’s take a closer look at the driving factors:

So, what has driven the ag land market to this point?

The vibrant ag economy over the past five years has been supported primarily by strong commodity markets. However, if we look deeper into the past 25 years, the momentum began building then and accelerating to the point where we are today.

As agriculture pulled itself out of the ‘80s farm crisis, many lessons were learned, and those experiences were applied to how landowners and farm operators made decisions moving into the ‘90s and 2000s with a goal of improving profitability and practices.

At the same time, another segment of land buyers entered the market in the form of “outside” or “non-traditional” investors. These individuals or groups saw opportunity in what they considered an undervalued asset. Competition for land was limited, as most local farm operators were recovering from losses from the ‘80s and didn’t have the resources to support additional land purchases.

Moving into the early 2000s, we began to see commodity markets rise and equity grow in farmers’ balance sheets. Larger investment groups also became more active during that time, which increased the competitive factor in land sales and began building a new floor for land values.

These market dynamics continued into the mid-2000s, then grew from 2012 to today. The investor segment became more aggressive in buying land, which pushed local operators to make stronger bids at land sales to be the successful buyer.

Within the past six months, we’ve started to see a settling of land values as commodity markets slowed in growth, drought concerns became apparent, and lending volume increased. Landowners and farm operators also saw their equity positions narrow as operating expenses, interest costs and inflation took a toll on bottom line profits.

What will sustain land values moving forward?

The overall ag economy is still healthy and profitable. Although commodity market growth has slowed, prices remain at or above historic averages as input costs move in a downward trend.

There continues to be strong interest in purchasing ag land across the U.S. Both individual buyers and land investors have created this competitive atmosphere in the agriculture real estate market. We predict interest will only increase as we move into the second half of 2023, while properties offered to the market will be limited, thus helping to sustain current values.

We should expect to see a plateau in land values based on past agriculture cycles and a new normal in land values set prior to the beginning of a new economic cycle. Profitability in agriculture will dictate the timeframe of a cycle, and land values will be driven by buyer competition and the supply available for sale.

This has been an exciting time for those of us involved in agriculture over the past few decades, watching the momentum build for profitable farm operations and increasing asset value for landowners -- especially considering the struggles experienced through the ‘80s and slow recovery in the ‘90s. We are bullish on the agriculture economy and look forward to what the future brings to this valuable asset: land.