Farm buildings appreciation driving US land values

The recent growth in farm real estate prices has more to do with the rising value of dwellings than a rebound in farm profitability, according to Farmer Mac.

The appreciation of farm buildings accounts for much of the growth in farm real estate value reported in the USDA’s August Land Values Survey, Farmer Mac said.

In its latest quarterly outlook, the secondary market provider argues that the rising value of farm buildings, and not any rebound in farm profitability, was the primary driver for the 2.3 percent growth from 2016 farm real estate values that the USDA reported.

“The strengthening US economy may have helped lift farm real estate values by placing upward pressure on the value of farm dwellings,” co-authors Jackson Takach and Ryan Kuhns wrote. “Factors like recreational income, proximity to ethanol plants, urban influence and the macroeconomy have all been linked to higher-valued farm real estate.”

Takash, Farmer Mac’s director of economic and financial research, told Agri Investor that the company’s farmland value analysis took into account readings of the market from Federal Reserve banker surveys, universities and transactions data.

“The pastureland percentage increase this year was small at 1.5 percent, with no increase in the cropland values. With those two things combined, you would think the overall value of farm assets would go up by somewhere between zero and 1.5 percent,” he said.  “The only conclusion we can reach is that [an uplift in buildings’ value], not the underlying land value, is what’s driving that 2.3 percent increase,” Takach said.

The role of farmland buildings is addressed in the USDA’s report, but Takach said it does not provide a detailed enough view to determine exactly what percentage of the overall increase was driven by farmland real estate or how the dynamic varies among regions.

The USDA has only provided separate statistics for pastureland, cropland and all farm assets since the late 1990s, he added, making it impossible to know how the role of buildings within overall farmland real estate readings today compares with the downturn of the 1980s.