Demand for Farmland Fueled by Grain Rally

“Rising commodity prices are very good for farmers. They have caused a rise in the price of farmland.

 

In addition to more income, rising land values increase farmers’ net worth.

 

However, the massive deficits working their way through the economy are causing inflation, much of which is not fully reflected in published inflation statistics because the formulas have been tinkered with to make inflation seem lower.

 

This is a time bomb – and not just for farmers.

 

NOTE: this article was originally published to WSJ.com on March 28, 2021. It was written by Jesse Newman.

Rising prices for farmland sideline many smaller growers; ‘it’s a real kick in the shorts’

The battle for farmland is playing out in small town community centers, online portals and parking lots, where bids in Covid-19-era auctions are placed with a wave from the window of a pickup truck or a quick flashing of headlights.

There, auctioneers are peddling parcels of land to farmers eager to cash in on the best commodity prices in nearly a decade. They are also presiding over intense jockeying for fields that can test the fabric of rural communities as a shrinking set of growers compete for control of the nation’s prime soil.

“Each month it seems like we’re setting new highs in the auctions we’re handling,” said Mike Norgaard, co-owner of Northwestern Farm Management Co., which sells and rents land in such states as Iowa and Minnesota.

Farmland managers say more people are vying for land, and that some parcels are selling at—or above—prices seen during the previous farm boom nearly a decade ago. U.S. farmland values surged in the decade leading up to 2014, more than tripling in big farm states like Iowa and Nebraska, according to U.S. Department of Agriculture data. By 2020, however, land values in those states had fallen by about 15%, pressured by a drop in crop prices that cut farmers’ incomes and drove some out of business.

Now, a sharp turnaround in the farm economy is breathing new life into the land market. Farmland values rose during 2020 as soaring grain prices last fall revived farmers’ fortunes, according to February reports from three regional Federal Reserve Banks. Land prices in the Chicago Fed region, which covers parts of Illinois, Indiana, Iowa, Michigan and Wisconsin, climbed 6% last year, the largest such increase since 2012, the bank said.

Many agricultural lenders surveyed by the banks expected farmland values to rise this year as well. A March survey of Iowa farmland specialists showed a statewide average of farmland values was up nearly 8% since September, according to Iowa’s chapter of the Realtors Land Institute.

High commodity prices recently helped convince Minnesota farmer Matt Jerzak that the time was right to add some 650 acres to his family’s 4,000 acre farm, despite per-acre prices that he says are up roughly $2,000 from last year.

“Is it a cheap time to buy ground? No,” Mr. Jerzak said, adding that much of what he purchased abuts his existing fields or grain-bin site. “That land will probably come up for sale once in our lifetime,” he said.

Such purchases are out of reach for many younger farmers like Jordan Goblish, who grows corn and soybeans about 50 miles east of Mr. Jerzak. Mr. Goblish, who rents most of the land he farms, has been hunting for ground since one of his landlords decided to raise crops again himself this year. Losing the ability to farm those fields cut Mr. Goblish’s 500-acre farm by half.

Mr. Goblish has been scouring local newspapers for new ground and posting ads on websites like Craigslist and Facebook Marketplace, but says he can’t afford the lofty sums other farmers are paying to rent land. Nearby farms are leasing for $300 or more an acre, as much as $100 more than his current contracts, he said.

“There’s no way I can break even at those prices,” Mr. Goblish said. “It’s a real kick in the shorts.”

Competition among U.S. farmers for land is fierce partly because there is less to go around. America’s farmland has shrunk by 25%, or 305 million acres, since 1950, according to USDA data. Investors have also piled into farmland, with pension plans and hedge funds scooping up ground as an alternative to stocks and bonds.

Fewer, bigger farmers now dominate the country’s remaining 900 million acres, with 75% of farmed cropland controlled by about 13% of farms, the data show. Higher prices hasten consolidation by making it tougher for smaller, less-profitable farmers to afford a down payment or compete for leases, agricultural lenders and land managers say.

Farmers who rent more than half the nation’s cropland go to great lengths to curry favor with landlords, plowing snow from their driveways during winter, sending gift baskets over the holidays and offering bonuses in years of strong profitability.

Land owners often are other farmers, their descendants, or investors such as financial-services giant TIAA-CREF. Many landlords have longstanding relationships with their tenants, which can make it difficult for beginning farmers to find new land to lease. Even if a piece of ground is secured, rental agreements may be subject to annual negotiation, creating uncertainty for farmers who often assemble holdings from multiple owners.

After collecting an unexpected $40,000 in coronavirus relief from the government last year, Ohio farmer Rick Brooks gave each of his three landlords a $30 per-acre bonus, totaling nearly $6,000. “You have to be careful to keep them happy,” Mr. Brooks said.

Kansas farmer Cole Carpenter says he works hard to hang onto the land he leases, recently investing in technology to provide landowners with real-time, personalized data on how many bushels he harvested or acres he sprayed with fertilizer in a given wheat field. Still, he fears his ground will be the next target of a large farmer in his area, who is quickly amassing acreage.

“The thought process is ‘Uh-oh, are you the next fish in the tank they’re getting ready to go after?’” Mr. Carpenter said. “It’s cutthroat.”

Mr. Carpenter, who also raises cattle, said the nearby large farmer recently paid top dollar for a swath of native prairie, typically used for grazing cattle, so that he could plant crops. That purchase is driving up the value of other pastureland, and could put out of reach a parcel Mr. Carpenter wants to buy to run his cattle, he said.

“The big are getting bigger, and the rest of us are trying to hold our own,” Mr. Carpenter said.