U.S. Farm Sector Debt & Gross Farm Income Diverge

Land values have continued to climb, according to Farmers National Company, with farmland sale prices growing between 5% and 15% in the last 6 months, driven in part by competitive bidding and growing interest from investors looking for a stable investment that shows resilience during economic downturns. 

Domestic and foreign investors are buying farmland at premium rates. For investors, cropland has proven to be a stable asset that de-risks the portfolio while providing a consistent return on investment. Farmland REITS, hedge funds, investment portfolios and other investors have accelerated cropland acquisition, particularly in the last decade.

Strong farmland values, combined with low interest rates, and off farm income have allowed many farmers to
restructure real estate debt to combat liquidity pressures. This has contributed to elevated debt levels during a time where farm liquidity remains challenged, and continued volatility in global markets could introduce major swings in farmer balance sheets. Margins will also tighten as labor costs continue to rise, potential regulatory costs are introduced, and input prices remain elevated. Any decline in future farmland values could put significant pressures on farmers to cover growing farmland debt.

Barrier to Land Ownership

High Quality Land Values by State

Farm operators are also looking to take advantage of strong commodity prices and expand their operations through acquiring land. However, as land prices continue to ascend, farmers renting acres over purchasing them is becoming more and more likely.

As of the 2017 ag census, 39% of all farmland was rented. According to Bruce Sherrick, a professor of agricultural economics at the University of Illinois at Champaign-Urbana, about 60% of row crop farmland in the Midwest is leased. Over 50% of non-operators acquired land through inheritance, according to USDA’s 2017 ag census. 

As the average age of farmers continues to get closer to retirement age, a huge shift is expected in land ownership with a high percentage of that land owned by non-operators by 2035.

Why It Matters:

Who owns the land and dictates how it is managed may increasingly be different from who operates the farm. Understanding the customers agri-food organizations serve is a key element of providing any product or service. Identifying the desires and motivations of the non-operator landowner may prove to be just as beneficial as understanding the needs of the one farming the land.

Full reports on this and other topics are available to members of the Executive Intelligence Network. Contact Sarah Tveidt to learn more about membership.