Winners & Losers in rising Farmland Value
April 17, 2023
Last year, family farmers in Kansas and Iowa experienced the largest year-over-year increases in farmland value at 25 and 21 percent, respectively. In Iowa, the average per-acre price is now $9,400, the highest in the Midwest.
Of course, producers in Kansas and Iowa are far from the only folks to have witnessed such exponential increases in 2022. Pasture, cropland and farmland values all across the nation rose astronomically last year.
It’s no surprise. Global demand for food is on the rise while the amount of available farmland is plummeting.
Good and bad sides of the same coin
The good news: a positive outlook inspired by soaring farmland value can spill over into a state’s business and manufacturing industries, creating more workforce opportunities. The bad news: family farms feel the boom more acutely.
As with nearly all market realities, there are winners and losers of rising family farmland value. Where any one farmer lands on the spectrum depends on life stage and legacy.
The clearest winners of rising land values are retiring landowners. Those farmers looking to break ties with ownership and move on to other investments will reap unprecedented rewards in the sale of their land. Among those rewards is additional cash for re-investment due to the lowest capital gains taxes we’ve seen in the last decade.
On the other hand, farm families whose land is passing to the next generation will be facing a tough challenge. Siblings who choose to take over the farm alone could be in an especially sour financial pickle when it comes time to buy out their brothers and sisters. The only farmer potentially worse off is the beginning farmer looking to buy farmland without the benefit of a benevolent family member.
Moving everyone closer to the winning side
Fortunately, there are ways to move all farmers closer to the winning side of the equation. If keeping land in the family is important to the older generation, it’s critical they establish buy-out formulas and conditions in their estate planning. Doing so will pave a path to financial feasibility for the next generation to farm the land.
Brand-new farmers have some options, too. They should consider utilizing the Farm Service Agency’s Beginning Farmer programs, as well as checking into state-run agencies like the Iowa Finance Authority’s Beginning Farmer program.
In closing, a word of caution: Borrowers and lenders, be careful about increasing farmland value on balance sheets when borrowing against it. Positive cash flow is how farmers pay back debt. As an industry, we must always remember that land, regardless of its assessed value, only pays when it’s sold.
Calvin Bandstra is a vice president of lending for the $1.9 billion Bank Iowa, a leading independent ag bank and the second-largest family-owned bank in Iowa. He can be reached at (641) 676-4130.