Articles

    Updating the farmland market


    Dr. Bruce J. Sherrick gave a highly informative presentation during Chicago Farmers’ November meeting regarding the headwinds, tailwinds and implications affecting the future of agriculture. He noted that his take on a variety of factors that affect farmland value is based strictly on his opinion. Dr. Sherrick added that he gleans valuable resource material in his role as a member of the Board of the Federal Agricultural Mortgage Association and as director of the TIAA Center for Farmland Research at the University of Illinois Urbana-Champaign campus. He is the Marjorie and Jerry Fruin Professor of Land Economics at the university.

    Among the points that Dr. Sherrick made during his presentation:

    • Farmland remains a good investment.
    • There is $3 trillion in the ag sector and 80 percent of that is in farmland; there is little debt.
    • Private equities have agrowing interest in the agriculture sector.
    • Dr. Sherrick noted that two farmland REITs that sell stock are Farmland Partners (FPI) and Gladstone Land Corp. (LAND). A Wall Street Journal article published November 24, 2015, related, “The National Council of Real Estate Investment Fiduciaries’ (NCREIF) Farmland Index had an average annual return of 12% over 20 years. That beat the NCREIF’s Commercial Property Index and the S&P 500’s return of about 9%. It also topped investment-grade corporate bonds, which had returns in the 7% range.”
    • From 1970 to 2015, farmland is the only investment that averaged a double digit rate of return. “Very few assets have that track record,” he observed.
    • 24% of the land is controlled by four percent of the farms in the United States.
    • While farmland owners are aging, this does not directly portend sales; there are multi-generational operators on many farms.
    • Farms become an asset to sell when families decide to turn the land into money to leave to heirs; however, anecdotal data tell us that the sale does not always happen because the owners can’t think of a better place to invest their money than in the land.
    • Farm sales often are triggered by the fact that generations become too far removed from the farm to have experienced time there or to have clear memories of being a part of the farm.
    • The website AcreValue.com provides free information regarding comps and appraisals, soil productivity ratings, crop mix, and parcel ownership information. “It is astounding what is available for free on line. This ability revolutionizes the cost of acquiring information,” said Dr. Sherrick.