The Farm CPA
Paul is now part of the fourth generation in America that is involved in farming and hopes the next generation will be involved also. Through his blog he provides analysis and insight to farmer tax questions.
Farmland Turnover Drops by 50%
Nov 21, 2010
One of the recent issues of Cornhusker Economics put out by the University of Nebraska Department of Agricultural Economics showed how the farmland turnover for the current year is about half of the long-term trend.
The market for farmland has historically been a "thin" market in that very little is marketed and changes in ownership at any point in time are few and far between.
From an economics viewpoint, most people would predict that as prices rise, more and more product will be released into the market. Farmland actually has the opposite happening right now. As the price rises, farmers and investors are holding onto their farmland.
Since good farmland may remain in the same hands for decades, the window--of-opportunity is very limited to make a buy.
Over many decades, a rule-of-thumb has been anywhere from 3% to 5% annual turnover of ownership. It is likely that the long-term trend is on the lower end, therefore, a particular piece of farmland will only be on the market once every 33 years.
The economics department reviewed all real estate transfer documents for Nebraska and eliminated any parcels less than 40 acres. They then calculated a three year average for transactions in the 2006-2008 period. These numbers were then divided by the total acres for each county to find out the turnover rate for each county in Nebraska.
They found that the average turnover for this period was 1.55% or an about 65 years between a particular piece of farmland coming up for sale. Some counties were substantially under 1%.
Although this information relates to Nebraska only, I would surmise that most other states are seeing the same trends.