Pages tagged "Farmland Sales"
We’re used to thinking of escalating rents as an urban problem, something suffered mostly by the citizens of booming cities. So when city people look out over a farm—whether they see corn stalks, or long rows of fruit bushes, or cattle herds roving across wild grasses—the price of real estate is probably the last thing that’s going to come to mind. But the soil under farmers’ feet has become much more valuable in the past decade. While urban commercial real estate has skyrocketed in places like New York, San Francisco, and Washington, D.C., powerful investors have also sought to turn a profit by investing in the most valuable rural real estate: farmland. It’s a trend that’s driving up costs up for the people who grow our food, and—slowly—it’s started to change the economics of American agriculture.
Think of it this way: If you wanted to buy Iowa farmland in 1970, the average going price was $419 per acre, according to the Iowa State University Farmland Value Survey. By 2016, the price per acre was $7,183—a drop from the 2013 peak of $8,716, but still a colossal increase of 1,600 percent. For comparison, in the same period, the Dow Jones Industrial Average rose less than half as fast, from $2,633 to $21,476. Farmland, the Economist announced in 2014, had outperformed most asset classes for the previous 20 years, delivering average U.S. returns of 12 percent a year with low volatility.
That boom has resulted in more people and companies bidding on American farmland. And not just farmers. Financial investors, too. Institutional investors have long balanced their portfolios by putting part of their money in natural resources—goldmines and coal fields and forests. But farmland, which was largely held by small property owners and difficult for the financial industry to access, was largely off the table. That changed around 2007. In the wake of the stock market collapse, institutional investors were eager to find new places to park money that might prove more robust than the complex financial instruments that collapsed when the housing bubble burst. What they found was a market ready for change. The owners of farms were aging, and many were looking for a way to get cash out of the enterprises they’d built.
And so the real estate investment trusts, pension funds, and investment banks made their move. Today, the United States Department of Agriculture (USDA) estimates that at least 30 percent of American farmland is owned by non-operators who lease it out to farmers. And with a median age for the American farmer of about 55, it is anticipated that in the next five years, some 92,000,000 acres will change hands, with much of it passing to investors rather than traditional farmers.
But what about the people—often tenant farmers—who actually work the land being acquired? During the same period that farmland prices started gaining steam, many crop prices have stagnated or fallen. After hitting highs above $8 a bushel in 2012, corn prices today have fallen back to less than $4 a bushel—about what they were ten years ago, in 2007, when farmland prices first started to soar.
It’s a tenuous predicament, growing low-cost food, feed, and fuel (corn-based ethanol) on ever-more-expensive land, and it raises a host of questions. Is this a sustainable situation? What happens to small farmers? And are we looking at a bubble that will burst?
Three big factors have contributed to the rapid increase in the prices paid for farmland—which is usually defined to include grazing land and forests—according to Wendong Zhang, an assistant professor of economics at Iowa State University. (Zhang tracks farmland prices, especially Iowa farmland prices, which are among the best documented in the country.)
First, interest rates, since the financial crash of 2007–2008, have been at historic lows, which tends to drive asset prices up. There has been “phenomenal growth” in the ethanol market, Zhang says, linked to increasing interest in sustainable fuels. Indeed, if you graph ethanol production over the past 20 years, it shows exactly the same explosive growth as land prices. And as exports to China and elsewhere have increased, farm income has risen. “Farm income is the variable to track” in analyzing land prices, Zhang explains.“Some act as landlords by buying land and leasing it out. Others buy plots of low-value land, such as pastures, and upgrade them to higher-yielding orchards.”
But there’s an additional factor: well-heeled investors are snapping up farmland, driving prices up. Here’s how the Economist explained it: “Institutional investors such as pension funds see farmland as fertile ground to plough, either doing their own deals or farming them out to specialist funds. Some act as landlords by buying land and leasing it out. Others buy plots of low-value land, such as pastures, and upgrade them to higher-yielding orchards.”
And, says Craig Dobbins, a professor of agricultural economics at Purdue University, “Farmland and other real estate investments are good investments to balance the risk of investments in stocks and bonds. These buyers are sensitive to the expected rate of return that will be received from the purchase of such an investment. If farmland values rise to levels that it does not appear the investment will provide the threshold rate of return, they will not purchase. The location preferences of these buyers are much more flexible than an individual farmer.”
Institutional investors can and do buy land in every region and of every type: cropland in the Corn Belt, rangeland in cattle country, or fruits and nuts in California. Among the big players are TIAA-Cref, BlackDirt, Hancock Agricultural Investment Group, American Farmland Company, AgIS Capital, and Gladstone Land Corporation. There are other institutional investors as well, showing a cross section of financial interests in the relatively stable investment that land represents over time. According to RD Schrader, a real estate broker of farmland based in Colorado, “The number of investors is growing, and because of that, it occurs more often and makes the marketplace more fluid. With the downturn in values now, the institutional investors help keep the land values more stable.”
That sounds great if you want to sell land, as many American farmers, approaching retirement age do. But from the viewpoint of sustainability, there are many disadvantages to consolidating farmland in the hands of financially oriented landlords.
"A recent article has once again highlighted a trend across Oregon of rising farmland prices and significant land ownership changes that risk the loss of family farms and access to land for beginning farmers. In response to these trends, in 2009 we created www.oregonfarmlink.org to help match up land owners and beginning farmers, and more recently we worked to create Oregon's Beginning Farmer Loan Program (Aggie Bonds) to help with farm financing issues.
But much more needs to be done: the future of our local and regional food systems and family scale agriculture is at stake. Portland State University researcher Megan Horst has been looking into recent Oregon land sale patterns, noting that 'sales figures compiled so far raise issues Oregonians ought to be discussing. Among them: Who has access to agricultural land, and what happens if food production is concentrated in the hands of the few who can afford to buy large swaths of land?'
What do you think Oregon could be doing to better address these big questions?" - Friends of Family Farmers
Diane Daggett remembers the conversation with the woman who had just purchased the Daggett family's 440-acre cattle ranch in Northeast Oregon's Wallowa County, land that had been in the family for four generations.
The buyer said she had called her husband, who was aboard their yacht in the Cayman Islands, to share the news. "Honey," the woman said she'd told him, "I just bought the most amazing birthday gift for you."
And the land, sold by Daggett's step-mother for what Daggett figures was three times what it could generate as a cattle ranch, slipped from the family's grasp. Now it lies behind a locked gate.
Variations of that story are playing out across Oregon and other states as farm and ranch land changes hands, sometimes by thousands of acres at a time. Some buyers are fellow farmers who are expanding their operations under the mantra of "get big or get out." But other buyers include investment firms, wind energy developers, conservation organizations, companies that fit the description of "Big Ag" and wealthy individuals looking to establish private hunting reserves or vacation retreats.
The impact is unclear at this point, but the primary worry is about ag land being taken out of production. Jim Johnson, the Oregon Department of Agriculture's land-use and water planning coordinator, said ag land conversion is a concern especially in areas with "amenity values." Daggett's scenic Wallowa County is an example, "Where the primary reason to live out there is to be there, and the secondary reason is to farm," Johnson said.
Ag property purchased to be a recreational site, he said, inflates land values and makes it more expensive for farmers and ranchers to buy or rent.
New owners who aren't interested in farming themselves might gain more revenue by enrolling land in the federal Conservation Reserve Program, in which they receive payments for taking it out of production, rather than leasing crop land to other farmers, said Walter Powell, a Condon, Ore., wheat farmer. In that case, there's a reduction to the farming infrastructure: the seed and fertilizer dealer, the equipment store, local employment and more, Powell said.
Jim Wood, a cattle rancher near Post, in Central Oregon, said the biggest threat to high-desert cattle ranching is the fragmentation of grazing ground. Ranching in his area requires big acreage to be ecologically and economically sustainable, and segmentation or development for other uses cuts into that and increases land prices, Wood said.
"If you overgraze, this landscape is quick to be unforgiving, and you're going to be out of business," he said.
Oregon's land-use laws — adopted to preserve farm and forest land from urban sprawl — generally preclude rapid, wholesale development of agricultural land.
Statewide, counties approved 473 houses on farmland in 2014 and 522 in 2015, the most current figures provided by the Oregon Department of Land Conservation and Development.
Daggett, whose Wallowa County property was sold, acknowledges an argument could be made that the "highest and best use" of her family land could be as a "view property."
But ownership changes can ripple deep in rural communities.
"This is very personal for me," said Daggett, who was Wallowa County's planning director in the late 1990s and, ironically, now sells real estate. She said her son had hoped to run cattle on the family land, but now leases land from others. "Like a sharecropper," Daggett said.
The giddy buyer who called her husband in the Caymans has yet to build a dream home on the property. It appears someone is leasing the pastures.
"There's an impact to the historic social fabric, there's this disruption socially," Daggett said.
"It's more than a question of who's buying," she said. "It's who's buying, and then what?"