For many in the investment world, this year has held more surprises than they would care to experience for the next couple decades! A surprise to some is the fact that farmland, as an asset class, hasn’t really participated in the volatility drama that has played out this year in most other assets.
Even in the face of the late-spring and early-summer commodity price slump, the horrible news coming from the ethanol sector, and widespread reports of breakdowns across the livestock sector, Iowa land values have seemingly kept their legs.
Every year in agriculture is different. A strong (or poor) outcome in one year is not a guarantee for longer-term results, so there is always a reason to pull on your boots again the next day, next month or the next season. There is always a new challenge to overcome.
The farmland market has “shrugged its shoulders” — thus far — despite the havoc that COVID-19 has caused. This has many market observers wondering why farmland is standing with such resilience, especially when other sectors of the investment markets are being legitimately whipsawed.
5 supporting factors
Several macro-level factors can help explain the stability farmland markets have enjoyed across Iowa and the Midwest:
1. Full ownership. Most farmland is owned with very little leverage, and this equity structure has created an incredibly firm foundation for the asset class. People who do not owe a payment on their farm do not worry as much about current conditions as those who do.
2. Low interest rates. For those who have payments, low interest rates are supporting what leverage does exist in the sector.
3. Sparse sales. Very few farms are for sale; quite simply the law of supply and demand explains the price support for the farms that are available.
4. Government help. Government support toward agriculture, in the form of subsidized crop insurance premiums and outright emergency program payments, is extremely supportive to what is happening in the countryside.
5. Overall stability. The strong long-term performance of the farmland asset class is also part of the answer. People want to buy more farmland precisely because it tends to perform well in times when the wheels are coming off other investments.
Stable long-term investment
At a more local or micro-level, the success of each growing season also influences the direction of the farmland market. This plays out neighborhood to neighborhood across the state. If one area has a huge crop compared to another, the area markets may perform slightly differently. That’s the market at work. It happens that way every year, based on local results.
The attitude across the countryside shifts up, down or sideways, depending on whether neighbors all stuff the bins full or whether they are instead “looking forward to next year.” But as long as the macro-level factors described above remain stable, farmland should continue to avoid the violent swings of other investment alternatives. The recent sales noted here reflect that stable reality.
Clay County. Northeast of Sioux Rapids, 69 acres sold at public auction for $9,400 per acre. The farm has 68 tillable acres with a 94.7 CSR2, which equals $101 per CSR2 point on the tillable acres.
Mitchell County. Near New Haven, 100 acres sold for $5,500 per acre. The farm has 98 tillable acres with a 54.2 CSR2, which equals $103 per CSR2 point on the tillable acres.
Bremer County. East of Frederika, 155 acres sold for $9,392 per acre. The farm has 152 tillable acres with an 84.7 CSR2, which equals $113 per CSR2 point on the tillable acres.
Guthrie County. Southeast of Guthrie Center, 191 acres sold via online auction for $7,030 per acre. The farm has 171 tillable acres with a 75.0 CSR2, which equals $105 per CSR2 point on the tillable acres.
Hardin County. East of Owasa, 74 acres sold for $8,500 per acre. The farm has 67 tillable acres with an 86.7 CSR2, which equals $108 per CSR2 point on the tillable acres.
Iowa County. Southwest of Norway, 149 acres sold for $6,711 per acre. The farm has 139 tillable acres with a 67.6 CSR2, which equals $106 per CSR2 point on the tillable acres. A tree-lined creek breaks the farm into two separate fields.
Taylor County. Southeast of Sharpsburg, 137 acres sold at public auction for $4,350 per acre. The farm has 137 tillable acres with a 51.7 CSR2, which equals $95 per CSR2 point on the tillable acres. About 47 acres are being cropped and 90 are enrolled in the Conservation Reserve Program.
Decatur County. Near Garden Grove, 210 acres sold for $3,900 per acre. The farm has 130 cropped acres with a 41.1 CSR2, while the balance of the farm features grass waterways and timbered draws.
Lee County. South of West Point,95 acres sold at public auction for $4,000 per acre. The farm has 74 tillable acres, with a 69.4 CSR2, which equals $74 per CSR2 point on the tillable acres.
Hensley is president of Hertz Real Estate Services, which compiled this list but did not handle all sales. Visit hertz.ag.