A Snapshot of the U.S. Farmland Market
After dipping slightly in the immediate aftermath of the 2008-09 Great Recession, U.S. cropland value has resumed its steady march upward over the last decade or so. Nationwide, average cropland value has increased from $2,540 per acre in 2009 to $5,050 in 2022, according to data reported by USDA’s National Agricultural Statistics Service (NASS). This represents an overall increase of more than 90 percent, or an annual gain of 7 percent.
Regionally, land prices have risen even more dramatically in the Midwest. The Iowa State Land Value Survey, released on December 13th, found that the average farmland value in the state spiked to $11,411 per acre in 2022, a 17 percent increase over 2021. This year is the first time that the statewide average exceeded $10,000 per acre in nominal dollars. Since 2009, average prices in Iowa have risen by more than 160 percent, nearly 80 percent faster growth than the national average mentioned above.
What is driving this steady increase in farmland value over the past decade or so? I believe that there are a number of factors at play, including very basic supply and demand drivers. An extensive study of the farmland supply in the United States was released earlier this year, conducted by American Farmland Trust. The study found that 31 million acres of U.S. farmland had been diverted to other uses over a recent 20-year period, from 1992 to 2012. This decline was due primarily to urban sprawl and expansion of low-density residential development, building homes in rural areas on acreages too small to sustain conventional farming operations.
Relatively high net farm incomes for the sector in recent years has also contributed to higher farmland prices. Between 2018 and 2022, U.S. net farm income exceeded the long-term (2000 through 2020) average of $77 billion in nominal dollars in each year, and is forecast to be more than double that long-term average for 2022, at more than $160 billion. The strong farm income picture is driven both by relatively high demand, as many U.S. households indulged in higher at-home food consumption in place of their normal use of services such as dining and visits to sports or entertainment venues during the COVID-19 pandemic, and somewhat reduced food supply, due to persistent drought conditions in the western United States.
Demand for farmland is coming from both inside and outside the U.S. agricultural sector. Many U.S. crop farmers received multiple large payments under trade adjustment (due to the trade war with China) and coronavirus relief programs in recent years under both the Trump and Biden administrations. For those farmers wishing to invest some of that cash in their operations, buying more land was an appealing option, especially since the supply of much farm machinery was constrained by supply chain problems with semiconductors and other key components. A November 2022 auction of 73 acres of prime farmland in Sioux County (Iowa) was claimed with a bid of $30,000 per acre, likely a record high sales price for Iowa farmland. The auctioneer reported to a local radio station that all of the bidders for the land were local farmers.
Farmland has also become an attractive investment to non-farmers. According to an investor advisory group at Green Street, a commercial real estate analytical firm, U.S. farmland posted an average return of 11.2 percent over the past 25 years, roughly 17 percent higher than investment over a comparable period for stocks in the S&P 500 index, and also less volatile.
In recent months, a number of U.S. policymakers have raised concerns about increased purchases of U.S. farmland by foreign entities. In late October, a large number of Republican members of the House of Representatives, including Rep. Glenn Thompson (R, PA) and Rep. James Comer (R, KY), expected to become chairs of the House Agriculture and Oversight Committees next year respectively in the 118th Congress, wrote a letter to the U.S. Government Accountability Office asking for a review of foreign ownership of U.S. farmland. USDA’s Farm Service Agency (FSA) publishes an annual report entitled Foreign Holdings of U.S. Agricultural Land, which details their estimates of the purchases and ownership of U.S. farmland by foreign persons or entities. Such a report has been required of USDA since the passage of the Agricultural Foreign Investment Disclosure Act (AFIDA) in 1978. The latest report with estimates for the end of 2020, shows that just over 37 million acres of U.S. farmland is foreign held, led by Canadian (32 percent), Dutch (13 percent), Italian (7 percent), and British (6 percent) investors and firms. Chinese investors held less than 1 percent of all foreign-owned farmland. Total foreign holdings accounted for less than three percent of all U.S. farmland.
In their letter to GAO, the lawmakers questioned the accuracy of the estimates, suggesting that self-reporting requirements now in place are not adequate. They asked the agency to describe the procedures currently in place to ensure proper disclosure of acquired agricultural land by a foreign entity and what steps are being taken to ensure data reliability. They also requested GAO to suggest policy options for improving the reporting process.
As of November 2022, eight states were considering enacting laws limiting foreign ownership of farmland, and one state, Indiana, recently put such a law in place, specifically citing recent purchases by government-linked entities in China as the rationale.
