After years of stagnation, cropland values rose an average of $1,300 an acre in the three years since the pandemic hit the United States, according to the Agriculture Department. Values mushroomed 33 percent at the same time farmers enjoyed back-to-back years of record-high farm income, with income forecast to be the third-highest this year.
USDA’s annual Land Values report estimated cropland to be worth an average $5,460 an acre nationwide this year, compared to $4,100 in 2020, when the acceleration in land values began.
The northern Plains saw the largest increases among regions in the past year, up 14 percent, led by a nearly 17-percent surge in Kansas.
The three-year increase was even larger in Kansas, 65 percent, reaching an average $3,440 an acre, according to USDA data. Heady increases were notched in the top two corn and soybean states, up 31 percent in Illinois and 41 percent in Iowa. The Hawkeye State topped $10,000 an acre for the first time. California, the state with the most expensive farmland, recorded a 23-percent increase in three years, to $15,880 an acre. Texas, No. 1 in cotton and cattle, saw a 23-percent increase.
Real estate is often the foundation of a farmer’s finances, and for the farm sector it amounts to $4 of every $5 in assets. Earlier this year the USDA said it expected land values to rise far more quickly than debts, meaning an increase in farm sector equity and a larger bulwark against adversity.
Land markets were expected to cool somewhat this year, to single-digit increases in price, instead of the double-digit escalation of 2021 and 2022, said senior vice president Paul Schadegg of Farmers National Co., the farm management and real estate company, a month ago. Farmers are the predominant buyers of farmland although investors help set a floor on prices.
“These operators have enjoyed a period of high liquidity over the past five years but are now moving into a period of increasing debt service and borrowing,” said Schadegg. “This will most likely result in less available cash reserve to deploy for capital expenditures and land purchases.”
The value of farm real estate, which combines land and buildings, rose 7.4 percent to an average of $4.080 an acre from last year, and pasture land increased in value 6.7 percent, to an average of $1,760 an acre, said the Land Values report. The USDA said farm real estate was worth $3.27 trillion in 2022.
For the Land Values report, the USDA selected 9,000 segments of land, each covering about one square miles, across the United States. Enumerators contacted each of the producers with agricultural operations in those tracts in June to record the value of cropland, pasture and buildings for each producer’s entire farming operation and the estimated percentage change from the previous year. The information was then “reviewed for reasonableness and consistency” with data collected this year and the past year.
Cropland values accelerated briskly during the commodities boom that ended a decade ago. They were flat from 2014 to 2020.
Analysts commonly say that pandemic-relief payments and a surge in commodity prices, amplified by Russia’s invasion of Ukraine in 2022, gave farmers the cash to pursue land when it was offered for sale in recent years. Low interest rates helped as well; higher rates are expected in the near term at the minimum.