The sale of farmland right now is rare, and farmers are the primary buyers in the marketplace. (Photo by Carrie Muehling/WJBC)
By Carrie Muehling
KANSAS CITY – There is a shortage of sellers when it comes to farmland, and the law of supply and demand continues to push farmland values higher.
In McLean County in central Illinois, just 0.7 percent of the farmland has changed ownership within the past year. For Moultrie County a little further south, that number is just 0.3 percent.
“The biggest barrier we face at the moment is that there is no reasonable alternative investment. Why are you going to sell that three or three and a half percent returning farm and take it into Bloomington, Ill. and put it on deposit for one quarter of one percent? And that’s the biggest barrier,” said Murray Wise, CEO of Murray Wise Associates, a real estate and farm management firm based in Champaign, Ill.
A few years ago, much of the farmland, especially in and around urban areas, was being sold to developers. Farmers often used a 1031 tax exchange tool to purchase land in other areas. Today, farmers are purchasing two acres for every acre an investor is purchasing.
“Farmland value today in most states is higher than the development value,” said Wise. "In Florida, they’re taking up golf courses and converting them back to farms. In California, they’re tearing up subdivisions and returning them to farms. We see that happening in a number of different states, where what was perceived five years ago as something that was soon going to be developable land is now going back to farms.”
The highest recent sale came in northwest Iowa, where a tract of farmland in Sioux County brought $21,900 an acre. Wise knows of five cases where the land has brought more than $15,000 per acre. While there is concern these values represent a “bubble” that is artificially inflated, Wise does not believe that is the case. He does believe a 10-15 percent correction would be healthy, but does not see that happening. He said it is likely continued volatility in commodity prices will affect everything else, and those in the farmland marketplace should be prepared for that.
The owners and investors include the actual people who are farming the land and landowners from other places who are renting it out. Lots of East and West Coast dwellers, as well as people from cities like Chicago now want to own a farm as opposed to investing in the stock market or other places.
Wise predicts land values will continue to increase at twice the rate of inflation for the next five to 10 years. He participated in the Trade Talk event at the National Association of Farm Broadcasting convention in Kansas City earlier this month.
Carrie Muehling can be reached at email@example.com.