Large farmers have captured lion’s share of rise in land prices

American farmers who owned at least half of the acres they manage have captured most of the value created from the appreciation in farmland values since 2000, according to the US Department of Agriculture.

In a report released last week, the USDA’s Economic Research Service examined factors that brought farmland values from an average of $1,483 per acre in 2000 to $3,060 in 2015. While the jump means the number of “financially distressed” farms has dwindled, the ERS found that operators that owned more than 50 percent of their acres purchased more farmland than their smaller peers since 2000. It also argued that the current gap between land value and farming returns suggests land prices will fall further.

Because the 2,784 “major owners” who already owned half the land they farmed could access more real estate-secured debt, the report found, they were able to expand their holdings while their 808 younger, less-experienced “minor owner” counterparts were largely kept from the market.

The ERS wrote that both groups of owners increased their debt at about the same rate during the rapid land price appreciation from 2002 to 2007. The fact that the growth rate in interest payments was 17 percent higher for major owners, however, reflects that the borrowing left them in a better position to buy. Major owners saw their land holdings grow at a rate 27 percent faster than minor owners, translating into an average addition of 132 acres for each large farm, according to the report.

“The fact that older, more experienced farmers acquired more land quickly during this period of rapid appreciation implies that the gradual transfer of land between generations from more experienced to less experienced operators may slow during periods of rapid appreciation,” the report said.

The authors acknowledged that, outside brief periods of high income from 2003 through 2005 and 2011 through 2014, farmland values during the 2000 to 2016 period were higher than economic theory would predict. Given that farm income alone could not account for land values during this period, the report highlighted the role that low interest rates played in supporting land values. It also predicted that farmland would remain an attractive investment as long as its returns continue to surpass those of its low-risk alternative, the 10-year Treasury note.

Echoing findings from a 2016 study of farmland ownership tenure and transfer, the USDA forecasted that a total of 93 million acres – about 10 percent of the US total farmland – would change hands through gifts, trusts or wills by 2019. Only 2 percent of that is expected to be sold to non-relatives.

“A change in land values in response to changing economic conditions may affect landowners’ decisions about holding, transferring or selling farmland,” the report’s authors hazarded.