Editor’s note: This is the second part of a two-part review of land values and the forces that impact them. Part 1,  "A look at Western land values,"  appeared Monday.

Farm safety net programs, many through the farm bill, balance income for ag businesses during market swings. This trickles down to stabilize land prices. With the current farm bill expiring in 2018, farm safety net programs may be cut or placed on hold.

“The last time around, we should have had a 2012 Farm Bill,” recalls Anton Bekkerman, associate professor, Montana State University Department of Agricultural Economics and Economics, “and we ended up having a 2014 Farm Bill. Safety net programs in the new farm bill — whatever they end up being — will likely impact the outlook of producers to buy land and the demand foundation of land values.”

If strong safety net programs continue, farmers will be emboldened to take risks and buy additional land. This will likely increase land values. If safety net programs are rolled back, farmers will need cash savings to create a personal safety net, as they won’t have a government safety net. This will decrease the demand for ag land, and cause land values to lower.

Ag investment
Farmers and ranchers are not the only buyers interested in ag lands. Increasingly, investment companies and out-of-state investors look to ag lands to diversify their real estate portfolios. Commercial real estate still appreciates faster than ag land, but ag land has doubled its appreciation to 4% to 6% annually.

In the Rocky Mountain West, many ranches that are for sale are not sold to the neighboring rancher who wants to expand. She or he would love to buy them, but can’t afford them. So the ranches sell to an outside investor who might need a tax write-off and want a vacation home.

PASTURE VALUE: The United States pasture value increased by $20 per acre (1.5%) from 2016 values. The Delta region had the highest increase of 2.9% from 2016. The largest decrease, at 1.7%, was in the Corn Belt region.

“I get calls from investment companies that want to specifically buy ag land,” notes Ben Eborn, explaining the changing ownership. Eborn is an Extension ag economist and professor at the University of Idaho. “They’ll buy a ranch or farm and often lease it back to the person from whom they bought it. Sometimes it’s a retirement fund. That's the weird thing. Not even an individual — it’s an institution.

“Some friends of mine are potato farmers, and they sold their ag operation to a retirement fund right before the real estate crash in 2008. The retirement fund leased it to the family, and couple years later ended up selling it back to them for less money. It was a wild turnaround,” says Eborn.

Often the most profitable farmers and ranchers lease more land than they own. An ag operation can be more profitable if cash is not tied up in land, but invested where it gains a higher rate of return.

“For instance, the value of a cattle ranch is high because of outside investment money,” Eborn explains. “A ranch could never pay for itself nowadays. So if a rancher can lease hay meadows and pasture without tying up money in an asset, it’s much more profitable business-wise.”

Food manufacturer impact
The land’s productivity and outside investors are not the only influence on land values. The value of ag land skyrocketed in Idaho’s Magic Valley because of the growth of food processing businesses.

“Idaho’s economy is driven by agriculture,” Eborn explains. “There is a huge dairy industry in Magic Valley. Chobani [a yoghurt company] built a Greek yogurt plant there outside Twin Falls. Then Clif Bar [an organic food and drink company] arrived.

“They both came because they can source the inputs to their food products locally: There’s available labor, and friendly business incentives. It’s really great for farmers, as they receive a better price for their product.”

Ag land is a limited commodity, especially productive cropland. “There’s a lot of people to feed, and people also have to live somewhere,” Eborn says of the future. “So people will continue to develop good farmland into subdivisions. I don’t see how farm ground can really decline in price a lot. I think ag land will continue to steadily increase.”

Hemken writes from Lander, Wyo.