Buying a plot of land in rural America has never been so expensive. And that’s even with soaring interest rates.
Rising commodity prices mean farmers made record amounts of money this year, spurring a rush for space to plant in 2023. More demand comes just as people fled to the countryside during the pandemic — with non-metropolitan areas growing faster than urban ones — and investors turned to fields as a hedge against inflation.
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Farmland prices in the Midwest, the nation’s breadbasket, jumped 20% just in the third quarter from a year earlier — bucking a downturn in the residential real estate market, according to data from the Federal Reserve Bank of Chicago and the National Association of Realtors. That was the eleventh consecutive quarter of gains, the longest streak since 2014.
Jim Schultz, who runs Open Prairie, a private-equity investment firm in central Illinois, believes farmland prices could double in the next 10 years. That’s after the 13,000 acres he bought between 1987 and 1992 for $750 an acres are now worth 16 times more.
“I believe we’re at the start of a decade-long trend,” said Schultz, who says he has no interest in selling. “We sit in a very good position.”
Growers across the US are making more money as Russia’s invasion of Ukraine chokes off supplies from a key producer of everything from corn to wheat and sunflower oil. Higher prices have boosted farmer profits to almost $161 billion this year, a 14% increase from 2021, the US Department of Agriculture estimates.
Broadband Expansion
More demand for farmland coincides with pandemic-induced shifts in population. The number of people living in non-metro counties rose 0.3% in the 12 months ended in July 2021, the first time the growth in rural population outpaced that of urban areas since the mid-1990s, according to USDA.
Tom Halverson, chief executive officer of CoBank, a cooperative lender serving rural America, said the expansion of broadband and the ability to work from home helped fuel that shift.
“The reality is that for the first time in several decades, rural America is picking up population,” he said on Bloomberg TV this month. “It’s our hope and our expectation that this will be somehow structural, but it will be unevenly distributed across the country.”
Farmland has also become more attractive as owners seek to make money from the shift to clean energy. Demand for renewable diesel — made from vegetable oils but with identical chemical properties to the petroleum-based fuel — is expected to triple in the next five years, according to BloombergNEF.
Growers also have space for solar panels and wind turbines, with the number of farms with photovoltaic installations doubling in the five years to 2017, according to the most recent USDA census of agriculture. Still, farmland with renewables assets accounted only for 6.5% of the total, highlighting untapped potential.
Producers can also now gain from sequestering carbon, with the price Indigo Ag pays farmers for carbon doubling in the past two years.
Read the full article here by Michael Hirtzer, Advisor Perspectives.
