U.S. Farmland Values and Returns Increase in 2010
Aug 11, 2010
Farm real estate, cropland, and cash rent values all increased over the past year, while pastureland values did not change. The USDA recently released its Land Values and Cash Rents 2010 Summary which tracks land and cash rent values in the U.S. Across the country, farm real estate, which includes all categories of farmland, appreciated 1.4% during 2009. The average price of U.S. farm real estate is now at $2,140 per acre.
Cropland values increased across the country by 1.1% on average, up to $2,700 per acre. In some areas, cropland values increased more than others. In the Midwest; Nebraska, Minnesota, South Dakota, and Illinois grew the most at 10.7%, 6.1%, 4.3%, and 3.2% respectively. Wisconsin cropland decreased by 1.1% and Michigan cropland decreased by 2.1% as the two made up the only states in the Midwest that lost cropland value.
While land values increased modestly, cash rents increased by 3.0% across the U.S. to $102 per acre. In the Midwest, Minnesota cash rents increased the largest, by 7.1% to $121 per acre, and Wisconsin cash rents increased by 5.7% to $92 per acre. Iowa still has the highest cash rents on average, at $176 per acre, which increased by 0.6% over the past year.
The total return (cash rents plus land appreciation) on U.S. cropland during 2009 was 4.9% which is significantly higher than last year’s 0.5% total return, but still below the 10-year average of 10.4%. We believe that the return on cropland will continue to grow as the demand for farmland is increasing at an alarming rate due to rising ethanol and food demands.
2008 marked the first time since 1987 that farmland values decreased in the U.S., and only the third time in the past 100 years. Even though farmland values slightly decreased in 2008, farmland was still able to return 0.5% due to cash rents. Unlike gold, often marketed as an inflationary hedge like farmland, farmland was able to provide its investors a cash return.
Throughout 2009, we saw the demand for farmland increase by outside investors, and farmers. Since farmers are the primary buyers of farmland, and the 2009 harvest was extremely delayed because of poor weather conditions, we expect the upcoming buying season to be very active. Many corn fields across the Midwest had standing corn well into winter, leaving those operators minimal cash on hand to make land purchases. If 2010’s harvest goes well, farmland values should continue their steady increase, and returns should make way back to, or pass, historical averages.
Coming off of 2008’s small decrease in farmland values, and 2009’s correction, the upcoming few years may provide investors an opportune time to invest in farmland. It is hard to find a time when an asset, whose 20-year average annual return is over 11%, can be purchased at a discount, but we believe that farmland may be that asset right now.
Read more about agriculture and farmland at Farmland Forecast.