“I can’t get a pencil sharp enough to make that work out.”
That’s Karl Setzer, Commodity Risk Analyst with AgriVisor, referring the sale of farmland in Plymouth County, Iowa for $26,250 per acre. That sale was for 55 acres at a total bill of $1.44 million. Setzer says farmland prices started climbing more rapidly since the start of the pandemic.
“The farmers are telling us, ‘I can't buy combines. I can't buy tractors. I can't get anything else for a tax shelter. I'm going to buy land.’ That is what we're starting to see. If you get one person doing that, then the next auction comes up and they’re like, ‘well, that land brought this. Mine is just as good. This is where I'm going to start.’”
He says if prospective farmland owners have the cash on hand, they’re acting now ahead of any further increases in interest rates.
“Inflation is a concern with that, but it's also just the farmer is a consumer like anybody else. If the U.S. consumer in a city can't buy a new vehicle, they spend money on going out to eat, or maybe they take a trip or something else. Farmers are starting to do that with land. I think that's something we're going to have to watch especially if they're concerned over higher interest rates in the future. Get that land locked in now rather than waiting for it.”
Setzer says the rapid rise in land prices may be pricing new farmland buyers out of the market.
“My concern is what is this inflation and these interest rates going to do for a guy starting out in farming and guys that have to borrow money for their inputs? As we get a little bit further into the fall and winter months and we start seeing guys buying inputs for next year, that's when I think we're really going to start to see more of a divergence in the market and more of an indication of how the inflation is really going to infect us.”
According to the USDA, the average cropland value across the U.S. in 2022 went up 14.3 percent from 2021.