What Direction For Farmland Prices? By Benedict T. Palen, Jr.

It is clear that there are challenges for farmland prices, and that is causing concern among all sectors of agriculture.   A layer of uncertainty that was not much of a factor, say, 10 years ago, is the degree of capital put into this asset class by outside investors, and the fact that a large amount of dry powder resides with some of those investors, waiting to see where the market trends.

It would be fair to say that investors who put money into farmland over the past ten years have enjoyed outsized returns—as compared to long term historical averages.   And the question is whether that capital will still be attracted to the asset class now that returns are trending downwards, and much more in line with historical averages.   With the recent increases in yields on Treasury securities, one has to wonder whether farmland will maintain its appeal with some investors, and what impact that might have on land prices.

For most areas of the US, local farmers, and those closely associated with farming, have been the primary buyers of farmland.   That said, there are areas where investors have tended to dominate the market, especially on very large tracts of land.   With the diminished current returns on farmland, and the softness in the long term trends for land prices, will those investors abandon the market?  If so, what impact will that have if the liquidity aspect of the market is sharply reduced?

These are questions that will be addressed in later blogs. Suffice to say that anyone considering an investment in farmland has a number of things to consider that were not of significance 10 years ago.