Tyne Morgan: The interest from outside investors has propelled farmland prices higher over the past year, but even with the rapid run-up in prices, experts say we aren’t in the middle of a farmland price bubble…
For those in agriculture, owning farmland has long been viewed as a symbol of status and wealth. Now, even individuals who don’t farm are jumping on board, looking to buy farmland. The interest from outside investors has propelled farmland prices higher over the past year, but even with the rapid run-up in prices, experts say we aren’t in the middle of a farmland bubble.
The top two farmland sales in Iowa raked in $21,000 and $20,000 per acre last week. While it’s not a statewide record, the strong interest and bids on farmland are proof farmland prices are in the midst of a bubble, as farmers are still in the majority of winning bidders at auctions today.
“It is the farmers who can afford to pay the higher prices,” says Jim Rothermich of Iowa Appraisal. “Their hold period is much longer than an investor. A farmer’s hold period could be from 50 to 100 years. So, if they pay too much for a piece of ground over time, it’ll work itself out and in 50 years, people ask, ‘Why didn’t you buy more land at that price?’”
Professional Athletes Are Buying Farmland
Buying farmland is so cool, even professional athletes are now buying land. Earlier this month, Cincinnati Bengals quarterback Joe Burrow, along with Boston Celtics forward Blake Griffin and a few other athletes, pooled together to buy farmland in northeast Iowa. The 104-acre farm was a transaction made through Patricof Co., a private New York investment firm that facilitated the deal.
“Owning land has become popular, it’s trending,” Rothermich says. “If you can go to the coffee shop and say you own land, or even Joe Burrow going to maybe a Super Bowl party and telling all his friends how much land his has, that’s the cool thing to do now.”
Burrow might not be playing in the Super Bowl, but if he does have a watch party, he will be able to tell his friends he owns farmland. Rothermich says the group of athletes purchased the 100 acres in Benton County, Iowa, for just over $10,000 per acre.
“I think they got a good deal, by the way, but they are wanting to get into the land space,” Rothermich says.
It’s not just professional athletes. Entrepreneurs, doctors and lawyers also see it as a symbol of status and wealth, joining their friends who are all in search of owning a piece of prime real estate. And today, that’s farm ground.
Not a Farmland Price Bubble
The strong interest, both in farming and outside of farming, is what’s laying a foundation for continued strength in not only land prices, but also a historic increase in cash rents. Rothermich points out while Iowa is seeing record farmland prices, Illinois is seeing records in the cash rent market.
“Rent auctions provide true open market rental valuation and answer the question: What will the market bear for my ground,” Rothermich says. “Farmers bid based on how much they would pay per acre to farm the ground for the specific lease term.”
“I don’t think this is a bubble because that implies it breaks with a massive deflation,” says Mike Walsten, contributor to Pro Farmer’s LandOwner newsletter. “Yes, there have been quite a few seemingly irrational land auctions and rent auctions at $600 an acre, but there were also quite a few signs of cooling while these headliners occurred.”
Rothermich also agrees with Walsten. While land prices are starting to plateau, prices aren’t going to plummet.
“It’s not a bubble,” Rothermich says. “I would say if prices go down or crop prices go down, it’ll readjust itself. But I think long-term, as you see these investors want to get in this space. They’ve done their homework, and they expect to the future to be bright for owning farmland. And so that’s why it’s so popular right now. They’re predicting the future to be good for probably the next 50 years.”
Walsten says investors are the ones who continue to show interest in the high-medium and top-quality farmland market.
“They can’t compete with a farm operator who will add the land to their operation, but they will buy top-quality ground that has a stable return of around 3%. This will hold, I think, even as interest rates rise because investors are looking for a place to put money outside of financial markets due to worries over U.S. debt, etc. This will tend to stabilize the market,” Walsten says.
Low-Quality Farmland Showing Signs of Weakness
Rothermich points out low-quality farm ground is starting to see some pressure. However, high-quality ground remains the hot commodity, with prices continuing to post gains.
“Yes, values are leveling off,” Walsten says. “The top- and medium-quality ground stills show low single-digit gains. Lower-quality ground is firm where no top-quality ground is available — southern Illinois for instance.”
Walsten says there have been some no sales – and an increasing number of slow sales- that started late fall and now into winter.
“These came where communities are normally much less aggressive on land purchases, the ground was less than top-quality, the percent tillable versus was low, the area has very little livestock, tile, etc. is needed. In a bubble, all this type of ground gets gobbled up,” Walsten says.
By Tyne Morgan, February 1, 2023