Watching land values rise and slow

Market to Market | Clip
Aug 4, 2023 | 6 min

Rising land values have advantages for investors looking for place to park money and those selling challenging new buyers to find a place to enter the market. 


Paul Schadegg: What we've seen, you know, if I look over longer term, and that's kind of how how I analyze things of that 5-10 year timeframe, we've seen some, some really nice gains in land value, especially over the last five. But even if we stretch that out to 10, they weren't quite as quick in the early part of those that tenure, timespan and then the past three years have been just just astronomical with, with what land values have done. Now, what we have seen is we saw things kind of slow down a little bit in the fourth quarter of last year. And then as we came into 2023, you know, it was kind of let's see what, how this is going to pan out. And we've seen a further what I call a de escalation of values. And not reading too much into that we're not talking about a drop in value, we're just not seeing increases as strong as we did, you know, in 2021, and 2020, and 21, were just just through the roof, and double digit increases across many states. And now we're just down to where we're seeing some, maybe some single digit increases. We've even seen some slight decreases when we talk about lower classes away and higher, higher classes, Alam still great demand for that. And they're still playing a premium.

Paul Yeager: Which is better for the industry, double digit increases, or a little slower, one to two to 5%?

Paul Schadegg: I'm, I'm a believer in slow and steady. And if we look out over that time period of go clear back into the 40s, and see how land has appreciated over time, I really like that slow incremental growth. And so those sharp increases are a little bit spooky, because they tend to breed sharp decreases. But the way the ag economy is today, we don't foresee that happening. It's in strong hands. It's not highly leveraged. You know, the ag economy in general is pretty healthy. But, but that always is a little spooky to see something go up because I'm a believer in the pendulum theory where, you know, it's hard, it's swings, one way it could swing the other.

Paul Yeager: Well, let's go back to your beginnings, the 80s. You know, you saw how quickly things could can move and change. Are we in a state of the 80s again, here right now.

Paul Schadegg: And based on the way, land is not highly leveraged, and that balance sheets look good? We're certainly not there. Now there, there are a lot of environmental and geopolitical events that could happen that could drive us to that point. But, but in today's market, now we're, we're, like I said, the poor land is held in very strong hands. Unlike the way it was in the 80s 70s and 80s. So yeah, we feel pretty good about and very bullish about agriculture in general.

Paul Yeager: Who is buying the land? Do you keep track of that?

Paul Schadegg: You know, we, we keep close tabs on that. And it's, it's an interesting dynamic, you know, we see, you hear you read the stories about, you know, celebrity buyers and foreign buyers and things like that. But that's what hits the news, the real story lies in that there are the land has been purchased, the actual buyer of the land, over 70% of the time is a operator farmer local usually, and they're adding to their, to their farm operation. Now, in saying that, there's a reason that these land values have moved up and there's another class and the investor of type buyers funds and, and just individual investors that are very interested in buying land. And so they are definitely holding a floor and they're pushing some of those values up. But when when they reach a certain point for their return on investment, they step away no motion, and then that's when the operator will make that final bid and usually ends up with the ground and there's there's a lot of motivating factors, you know, there's guys that have never seen a farm next to them come up for sale and so they want to take advantage. And you know, there's some pressures with adding making making your operation of scale that will work in today's economy. And so that's that's the motivation on their side.

Paul Yeager: Is there an age of a producer? Because what I hear you saying sounds like an old producer 70 Plus ownership, is that accurate?

Paul Schadegg: As far as buyers go, we we do see a lot of buyers in that. Oh, definitely. 50 to 70 range. There's there's definitely a lot of that we we do you see a lot of young buyers that are using vehicles, Lone vehicles that are out there and options to purchase as if they're able, but I would say the majority are in that for 50 to 70 range.

Paul Yeager: The Federal Reserve says they'd like to see inflation on a 2% clip that's their goal. Is that a good land value increase goal that you would like a 2% gain each year?

Paul Schadegg: When I look out across that long term chart, I, I feel good about a, a smaller gain than what we've seen in the last few years. That's that's where I say, you know, those sharp gains are a little bit spooky because you're worried what's on the other side. If I'm speaking for other landowners, 2% might be a little bit low, they would probably rather see something closer to five. If I'm if I look at it from a landlord perspective. Perspective, I would say that I would be rather I would rather be a little higher, but but I also understand we have some struggles going on with the economy in general. And we've got to we've got to figure out how to get a handle on that.

The full discussion will be part of the MtoM release on Tuesday.