When Florida farmer Jeb Smith retires, he wants to leave his son Jared with some financial security, and that means adding property to his 800-acre peanut, sod, cattle, and tilapia farm near Hastings.
Skyrocketing property values stand in his way.
“Can he afford to secure more?” says the elder Smith. “As a young 27-year-old, it’s getting more difficult to compete.”
Jared shares his father’s desire for more land, but as the suburbs of cities like nearby St. Augustine expand toward the family farm, his ownership dreams are pushed further out of reach.
“That makes it tough,” he says.
Farmers across the nation face similar hardships after the average value of agricultural land rose to $5,050 per acre in 2022, a 14.3% increase compared to 2021, according to a USDA land survey.
Florida — where ag land prices increased 10% — is hardly the most striking example. Prices rose 25% in Kansas, 21% in Iowa, 21% in Nebraska, 17% in Minnesota, and 19% in South Dakota.
High prices benefit some older farmers, as land values give them bigger returns if they sell fertile cropland. But those high prices put a steep barrier in front of young farmers looking for a foothold, experts say.
‘There’s not a lot of agricultural land left’
Myriad forces coalesced to push up cropland values.
In Florida, developers pushed out farmers as suburbs grew and white collar workers, newly empowered to work from home, looked for homes outside of congested cities, says Daniel Munch, an American Farm Bureau Federation economist.
“There’s not a lot of agricultural land left,” he adds. “Populations are increasing and folks are moving around. That pushes out agriculture.”
Florida’s citrus production dropped 90% since 2005 as a result of disappearing farmland, Munch said, citing an April Farm bureau report.
Experts also point to rising commodity prices.
“The main reason is strong profit levels in (corn and soybean) production in the last two to three years,” says Kent Thiesse, senior vice president at MinnStar Bank in Lake Crystal, Minnesota.
Those profit margins make crop fields more enticing to land buyers, he explains.
Yields are also generally up even after years of drought, says Austin Harthoorn, an economist for the Nebraska Farm Bureau Federation.
“So you’re seeing a strong agricultural economy with strong prices and farmers are feeling good,” he adds. “That contributed to expansion and investment.”
Some farmers like Smith pin the blame on wealthy, out-of-state developers gobbling up farmland for housing or solar arrays, but Thiesse says farmland buyers in the Midwest are overwhelmingly local.
“A lot of times buyers are somebody that an existing farmer has contact with that is looking for a place to invest,” he says. “It could be a relative or it could be a business acquaintance who rents it on a cash rental basis to an existing farmer.”
Austin Charlson, an Iowa farmer who also sells property, sees wealthy investors at land auctions. “But then there’s also been two or three neighbors to that farm and they’re the ones pushing each other.”
‘You want to spread that cost over more acres’
Buying more land is a quick path to higher profit margins.
The cost of inputs farmers depend on, such as tractors and other equipment, is trending upward along with land prices, Charlson said.
“You want to spread that cost over more acres, and that way you can justify updating your machinery,” says Charlson.
Farmers who lease a portion of their fields are also feeling the pinch as land owners hike cash rents, Munch said.
Nearly 40% of U.S. farmland is rented or leased, according to the USDA’s Economic Research Service.
“That’s a barrier to entry for a lot of folks,” says Munch.
To make matters worse, commodity prices are more volatile than land values, raising fears that high property values will outlast strong profits.
That scenario is already playing out. Prices for corn and soybeans dropped around 5% from January to May.
The USDA’s 2023 land value summary is due in August.
“I don’t think the price is going to drop a lot,” Charlson forecasts.