Farmland shares location as a common characteristic buyers associate with value. Contrary to popular opinion, not all farmland is experiencing a rise in the price per acre. According to the Federal Reserve Bank of Richmond’s latest survey of agriculture bankers in the Southeastern United States “found good farmland averaged $3,263 an acre during the third quarter – down 1.5 percent from the previous quarter and down 4.5 percent from a year earlier.” The survey noted “volatile feed prices continued to negatively impact livestock operators while the housing slump adversely impacted demand for lumber and nursery products.”
The decrease in farmland values in the Southeast ran counter to the country average, as reported in Land Values: 2011 Summary, USDA-NASS, August 4, 2011, stating, “In 2011, the value per acre of farmland and farm buildings in the U.S. is estimated to have risen by 5.9 percent.” “In 2012, the value per acre of farmland and farm buildings in the U.S. (preliminary) is forecast to rise another 5.9 percent.”
Farm sector assets, debt and equity are forecasted to increase as reported in an article published by Dairyherd Network.
Investors Buying Farmland
According to Arleen Jacobius in her article, More institutional investors see farmland as a growing part of their portfolios, published in Pension & Investments, investors are “attracted to farmland’s income and 7 percent to 10 percent return expectation.”
“The NCREIF Farmland index represented $2.9 billion in the fourth quarter of 2011, an increase of 107 percent from the index’s $1.4 billion market value in the fourth quarter of 2006, according to the data from the National Council of Real Estate Investment Fiduciaries, Chicago.”
In September, the Iowa Public Employee’s Retirement System allocated $100 million to UBS AgriVest for farmland investment. The City of Alexandria, Virginia, Fire and Police Officers Pension Plan made a $5.5 million investment with Hancock Agriculture Investment Group for farmland. The Oregon Public Employees Retirement Fund and the Los Angeles City Employee’s Retirement System also committed to investments in farmland.
It is estimated that the institutional investor ownership represents only one percent of the market. Oliver Williams, president of Hancock Agricultural Investment Group, Boston, believes investors “are still a very small slice of the overall pie, perhaps no more than 1 to 2 percent,” while the vast majority of farmland is bought and sold by farmers.
Farmers and investors considering the sale of their land should consider capital gains tax deferral strategies. Related articles include:
- Smart Farmland Portfolio Adjustments: 1031 Tax Deferral Strategy
- Deferred Sales Trust: Alternative to 1031 Exchange
- Three Issues to Consider When Selling Farmland.
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