Alternative Equity Advisors’ David Muth spoke recently at the 2022 Land Investment Expo on the asset classes in farmland investments, and the farm market. He cites inflation, population and digitization as key indicators of rising land value.
Muth began by looking at the 2021 National Land Report. Over the past few decades, regions have maintained their patterns of land-value growth. Some regions experienced faster growth than others depending on what was produced, but they remained consistent. According to the report, land values have risen in some states over the past year.
Muth points out that many states conduct their land value surveys to determine the growth of their land. He used the 2021 Farmland Value Survey of Iowa State University to illustrate his point. The survey revealed that Iowa farmland value increased by 29% between 2021 and $201, making the average state price $9,751 per acre, regardless of its quality.
High farmland values and buyers able to buy have led to a high transaction ratio this year. Muth said that this high-value, high-transaction time feels like a bubble about the burst.
“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. The Coronavirus Food Assistance program (CFAP), was then announced in April 2020. We are talking about $54 billion in distributions.”
The Market Facilitation Program offers assistance to producers whose commodities are affected by retaliatory tariffs, which cause them to lose profits in traditional export markets. Another government aid program, CFAP is available to producers who have suffered market disruptions due to the COVID-19 epidemic.
Muth claims that these programs were heavily distributed in areas that produce feed grains and livestock. Owner-operators could continue farming by investing large sums of money in the system.
“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 stated that farmland is closely linked to inflation. Recent interest from outside investors has been shown in farmland buying as a hedge against inflation and to reap the attractive return on investment.
Muth says that inflation is not the only factor that can predict economic growth. He also suggests that it is important to consider the population. India and China both have rapidly growing populations and high 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.”
Muth also sees farmland growing in value due to carbon. Although there are still many questions, Muth believes that carbon credit will increase farmland’s value as an ever-growing market.
Muth sees more digitization in the agricultural industry as it moves forward: electric vehicles and automated production systems.
“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.”
Source: Successful Farming
