David Muth of Alternative Equity Advisors recently spoke at the 2022 Land Investment Expo about the asset classes in farmland investments and the farm market. He points to inflation, population, and digitization as key indications of growing land value.
Muth started by looking at the 2021 National Land Report. In the past few years, regions have been holding their patterns of land value growth; some grew faster than others depending on what is produced there, but they stayed consistent. This past year, however, certain states have seen land values jump, according to the report.
Many states conduct their own surveys to trace land value growth, Muth says. He used the 2021 Farmland Value Survey by Iowa State University as an example. The survey showed that the value of Iowa farmland increased about 29% in 2021, bringing the state average to $9,751 per acre for all quality of land.
The high value of farmland combined with buyers equipped to purchase has led to a high transaction rate this year. Muth says this high value, high transaction time feels like a bubble about to pop.
“Let’s wind this back and look at what has been happening, starting with the 2018 Market Facilitation Program,” says Muth. “This initiative was the first of a number of ad hoc subsidy programs that created intense value in the marketplace. Then in April 2020, the Coronavirus Food Assistance (CFAP) was announced. We are talking about $54 billion in distributions.”
The Market Facilitation Program provides aid to producers who have commodities impacted by retaliatory tariffs that cause them to lose profit in traditional export markets. CFAP, another government aid program, is open to producers who faced market disruptions as a direct result of the COVID-19 pandemic.
Muth says those programs were heavily distributed to regions that produced feed grains and livestock. A lot of money flowed into the system, allowing owner-operators to continue farming.
“The reality is land values haven’t shot up much above the trendline,” says Muth. “If you look back at 2000, and straight trendline values, we’re right in the game. It doesn’t feel like a major bubble when we look at it in this context.”
He also says that farmland and inflation move closely together. Recently, outside investors have shown interest in buying farmland as a hedge against inflation, as well as its appealing return on investment.
Aside from inflation, Muth adds that one of the easiest ways to predict economic growth is to consider population. India and China have fast-growing populations and fast-growing GDPs. With a larger population comes consumers who have more demands on their products – how they are grown, what they taste like, and how healthy they are.
“We’re seeing [demand drivers] that are more associated with experience, health and wellness, and various other impacts,” says Muth. “They’re willing to disproportionately pay for those characteristics, and that can create more value for producers.”
Another way Muth sees farmland increasing its value relates to carbon. As an increasing market, there is still a lot to figure out, but Muth believes the carbon credit system will add considerable value to farmland.
As the agricultural industry moves forward, Muth also sees more digitization coming: electric vehicles, automated production systems, precision fermentation systems, and software.
“The key takeaway here is there’s going to be significant investment in these kinds of disruptive technologies, and they will ultimately have an impact,” says Muth. “We’re seeing first generations of this happening now.”