Land Values Level Out

What happened to the farmland bubble analysts predicted?

By Claire Vath | Photos By Jamie Cole

A few years back, farmland values were on a meteoric rise. Canada saw its 2013 values up 22.1% from 2012—the highest national average increase since 1985. The U.S. national average values rose 116% between 2004 and 2013, per USDA. Even so, analysts warned of a looming farmland bubble.

When values of key commodities are compared to how land prices have increased over the years in Iowa, Ontario and California, only almonds kept pace.

When values of key commodities are compared to how land prices have increased over the years in Iowa, Ontario and California, only almonds kept pace.

The rise “was historically steep for a number of years,” says Randy Dickhut, senior vice president, real estate operations, Farmers National Company, which serves the U.S. and Canada. “Traditionally, a bubble market is overwrought with demand, and investors then bought aggressively despite the run-up in prices.”

Economists worried about rising interest rates, coupled with a change in the supply-and-demand picture, the latter of which did come to pass with depressed crop prices and the 2016 decrease in beef prices. But then, the land bubble didn’t burst.

“The air has been slowly leaking out [of] the bubble the last several years,” says John Stratman, rancher and broker for Mason Morse Ranch Company, which serves North America and Brazil. “It’s something we’ll likely continue to see until commodity prices rebound.” While prices have softened a bit, they haven’t collapsed, he says. “Though we’re no longer seeing $15,000 an acre for good cropland.”

This past August, USDA reported a $10-per-acre average decline in U.S. farmland values, ending the decade-long land values boom. The Northern Plains region reported the highest losses, with Kansas land values dropping the most of any state—down 7.2% from 2015. In contrast, prices in the most expensive region, the Corn Belt, fell only .9% in the same time frame, with average prices holding steady at $6,290 an acre.

Dickhut also says he’s seeing land prices on the rise in some places. “Values have actually strengthened in the Columbia River Basin, owing to good water, California drought, and diversity of fruit and vegetable crops,” he says.

In Canada, “land values were slower to rise initially, but they’ve also had strong prices lately and their decline is slower, even as U.S. prices soften,” Dickhut explains. The average farmland prices are still rising in Canada, just more slowly than in previous years—up 14.3% in 2014 and 10% in 2015. He attributes the difference to the “lag in their land market versus ours [U.S.],” as well as a different crop mix led by wheat and canola.

So, why did the bubble of which economists warned never burst? “Those historically good profits pre-2013 were used to make sound purchases,” Dickhut says. “This wasn’t the 1980s, where farmers borrowed too much money. Lenders were requiring conservative lending on values, and buyers were making cash purchases or had lots of equity.

“Supply and demand has worked,” he adds. “Although supply for land has decreased a bit, and demand has softened some, values are in equilibrium.”