Secret Acres: Boom or Bubble? High farmland prices encourage investors, concern farmers

This story was reported in partnership with Investigate Midwest as part of InvestigateTV’s ongoing coverage of issues surrounding transparency in agriculture, including how limited information obscures who gets government subsidies, the shortcomings of a multi-billion dollar trade relief program, and how data regarding overseas ownership of farmland is incomplete.

(InvestigateTV) — A lot can change in just under three years — a flip in control of the House of Representatives, four new iPhone models, a once-groundbreaking vaccine now offered alongside annual flu shots.

For one fourth-generation farmer, almost everything has changed.

“It was time,” Darvin Bentlage said, referring to his decision to significantly downsize his farming operation.

“It was a little bit difficult, but I’ve always treated the farm as a business,” he said. “The enjoyment of the outdoors was the emotional part, but I’ve still got outdoors here.”

The longtime Missouri farmer said it made sense for him physically to cut back his footprint.

“My father, I watched him deteriorate on the farm and the ‘want to’ was still there, but the ability to do the job was not, and so I didn’t want to put my kids in that situation,” he said.

Not wanting to burden his children, however, goes further for Bentlage — he has discouraged his children from pursuing his trade, even if it means the generational legacy stops with him.

“I said, ‘Go get you a steady job that pays you,’” he said.

Bentlage originally spoke with InvestigateTV in 2021, and at the time noted smaller family farms such as his or farmers new to the trade are at a major disadvantage compared to large, corporate-consolidated operations, especially when it comes to the price of land.

“The small guys can’t compete,” he said in that 2021 interview, and just shy of three years later, Bentlage said he’s more convinced than ever after selling his own acres.

“My purpose was not to gouge anybody, just to get a fair price for myself and give everybody a fair price,” he said.

That price, $4,500 per acre, was actually below Missouri’s 2023 state average for agricultural land, but in the end none of the family farmers interested could afford it — and an out-of-state, corporate-backed buyer paid the asking price.

“They gave us what we wanted,” Bentlage said.

Agricultural land has almost always been seen as a “good” investment, with some economists in the past labeling the asset as “inflation proof” because of its generally reliable profits and the industry’s steady support from lawmakers.

In recent years, land prices have continued to see steep increases across the country despite market conditions that should have slowed their ascent. While some experts attribute this growth to how attractive farmland has always been, others are concerned about the level of investment by not only consolidated corporate farming operations, but by investment firms, hedge funds and other non-traditional players.

“When you’re an outside investor that’s interested in agriculture, you’re interested because you want a return. Now everybody wants a return on their work, but the difference with these outside investors are they don’t have the same community ties, the same community attachments a farmer does,” said Loka Ashwood, an associate professor of sociology at the University of Kentucky. “It’s not good for rural communities.”

Concerns such as Ashwood’s and the many experiences similar to Bentlage have garnered the attention of lawmakers, who have proposed tightening ownership rules to try to even the playing field.

There are those who say the concern over rising prices and the influence of investment ownership is overblown — that the farm real estate market is simply functioning as designed. That the reality of farming no longer being primarily a family-owned-and-operated enterprise is here to stay.

Rising prices

Every year, the USDA surveys farmers across the country to estimate the average amount per acre that U.S. farmland is worth — meaning how much that land would reasonably sell for under current market conditions.

Almost every year over the last decade that amount has increased. For 2023, the average is $4,080 per acre of farmland, an increase of $280, or 7.4%, over 2022, and almost double the average value in 2009.

For cropland specifically, the rise has been steeper — now $5,460 per acre compared to $5,050 in 2022, or an 8.1% increase, and more than double the average per-acre value in 2009.

At $4,500 per acre, the price Bentlage’s buyer paid, it matches Missouri’s 2023 state average for all farm real estate, and is slightly below the state average of $4,610 per acre for cropland.

Bentlage said, at the time, other properties in his area were going for $5,000 per acre.

Growing around 8% each year, Missouri’s prices have been increasing at close to the same rate as the national average since 2019.

In other parts of the country, though, the increases have been more extreme.

The Federal Reserve Bank of Minneapolis reported that according to its third quarter survey, values for farmland in its region were up to 12.8% higher for irrigated cropland compared to the same time in 2022.

Survey respondents — bankers in charge of agriculture lending — noted forces they see driving up prices beyond profitable crops.

“Several respondents noted pressures behind rising farmland prices, such as out-of-state hunters looking for recreational land as well as domestic and international investors purchasing property. These pressures have ‘driven up the price of ag land making [it] next to impossible for the next generation to purchase or even lease land to farm or raise livestock,’ said a Montana banker. ‘More & more is taken out of production as well.’”

A study out of Auburn University found that foreign investors — individuals or entities outside the U.S. — paid on average 13.7% more for farmland than U.S. buyers did for similar farms. Researchers looked at purchases made by overseas investors across 11 states from 2015 to 2020, and they compared those sales with comparable transactions involving domestic buyers.

According to researchers, those investors appeared to be more often interested in the non-traditional or non-farming potential of these properties, with the business names indicating involvement in solar or wind farming.

The Auburn study noted researchers determined no direct evidence that foreign investment specifically is driving the land market, as only around 3% of U.S. agricultural land is held by overseas owners.

However, InvestigateTV has found previously that federal data on land sales involving overseas ownership is often incomplete.

Who owns the land?

Even when investors are domestic entities, it can be difficult to identify who or what owns a given plot of farmland.

Ashwood, the University of Kentucky professor, has done research on the limited information available when it comes to land records.

“We don’t have the aggregated data through, for example, the U.S. Department of Agriculture, that shows how much corporate land ownership there is, one, and then ultimately, who are the investors behind those LLCs, and those corporate structures or those partnerships,” she said.

In most cases, property records are public information, but in the absence of an aggregated land registry at the federal level, the only real option is to go county by county — and even then, some states limit the disclosure of information about real estate sales to the public.

InvestigateTV and Investigate Midwest reviewed county land records for Midwestern counties that have seen large increases in cash rents in recent years and attempted to identify transactions involving non-traditional investors.

That review of tax assessors’ records, along with previous, similar analyses, provided numerous examples of high-dollar, high-acreage sales:

• Since 2020, Lawrence Land Holdings, LLC, a company owned by Tennessee billionaire Gaylon Lawrence, Jr., spent more than $22 million on at least nine properties in Piatt County, Illinois. In nearly all of those sales, the amount the company paid was nearly three times the amount of the most recent sale price.
• Of the more than $22 million spent by Lawrence Land Holdings, $9.08 million was for land purchased from Global Ag Properties USA, also known as Westchester Group Investment Management, a company owned by TIAA, the major retirement asset manager. TIAA, through subsidiary Nuveen, has a large portfolio of farmland in both the U.S. and abroad, according to a company publication.
• Land in multiple counties had been purchased by Farmland Reserve, Inc., an entity related to The Church of Jesus Christ of Latter-day Saints. The Mormon church has been seen buying up farmland across the country, with established agriculture businesses involving crops, cattle and citrus.
• Numerous properties in Illinois and Kansas were found to have been bought or sold in recent years by Baloo Enterprises, LLC, a company connected to Jacksonville Jaguars owner Shahid Khan. Baloo is headquartered in Urbana, Illinois, near his alma mater, the University of Illinois at Urbana-Champaign, which has a center for farmland research sponsored by TIAA.
• Dozens of properties were shown as being sold to Farmland Partners, Inc., reportedly the largest agriculture investment firm in the U.S. The company, which is traded on the New York Stock Exchange, has been open about its investment — even publishing a map on its website showing the farms in its portfolio.

Ashwood said one study she participated in looking at Illinois suggested that around 12% of agricultural land was corporate-owned — about half of which was owned by outside investors.

Nationwide, it’s been estimated that institutional owners — entities that have farmland as just one of many types of assets — account for just 1% to 2% of U.S. farmland ownership.

However, given the advantage in capital resources these companies have over other buyers, she said it’s likely the proportion of corporate ownership will keep getting bigger.

“It’s not just the amount that we think is in the structure right now. It’s how it’s positioned to grow because of all the advantages afforded to it,” she said.

In a press release about one of its purchases, Farmland Partners said, “We continue to hunt for prime farmland that can be purchased at a good price, and we prioritize properties that are close to other FPI farms because it creates efficiencies and drives strong rental rates.”

Rental rates — what operators pay to work farmland they don’t own and one of the metrics often used to estimate land values — have been going up. The Minnesota Fed survey found a 10.9% increase for ranchland rents in that region, and USDA data shows that is not an isolated phenomenon.

Ashwood and others say as ownership moves away from the individuals working the land, higher prices become riskier for everyone, including those whose retirement accounts or other investment portfolios are linked to growing numbers of acres.

“Some of my colleagues and fellow scholars in geography and sociology would say, ‘Yes,’ that there is a bubble right now in farmland, and it’s driven because of speculative investment,” Ashwood said. “It’s the treatment just of land as a good to diversify your portfolio or to make a return on, and you’re not necessarily concerned with the productive capacity of that land, or the long-term viability of the nutritional value of what you’re producing.”

Purdue University has been tracking one metric that agriculture economists use to look for signs of a bubble: capitalized rents.

Cash rental rates are believed to capture the profitability of an acre of farmland. If the price per acre for that same spot is higher than the cash rent can support based on long-term bond rates, Purdue economists suggest that could mean the market has over-shot the true value of the soil.

Using USDA average per-acre rent data and per-acre value data from 2023 and the current 10-year yield rate for U.S. Treasury bonds, the formula would suggest that many states have average per-acre values that are too high.

Purdue’s research notes that capitalized cash rents cannot be looked at in a vacuum, as there are a number of factors that influence farmland prices.

However, the university also did a survey in 2022 where 65% of respondents said they thought prices were too high, and one in four expected prices to increase through the end of 2023, with no change in how much profit land would bring in.

“Thus, over a quarter of all respondents have expectations consistent with farmland price bubbles,” the survey summary reads.

Serious skepticism

There are other academics, however, who remain skeptical of the influence of outside investment on land prices and the concerns of a bubble or outright refute the idea — as do many of those active in the farm investment industry.

Brian Luftman, cofounder of American Farm Investors, a firm that allows individuals to invest in a farm without having to front the cost of an entire operation, argued the increases are coming from a variety of causal factors.

“The average price that I’m paying for farmland now is 50%, higher than it was in 2011, when I started this business,” he said, “but it has accelerated over the last three years due to a host of factors. Oil prices have gone up, grain prices have gone up. A lot of it’s attributed to COVID spending and so much influx of cash into the market.”

He also said the war in Ukraine, one of the world’s largest producers of wheat, has pushed up commodity prices significantly, causing many farms to see appreciation over the last two years.

These sentiments were echoed in responses to requests for comment sent by InvestigateTV and Investigate Midwest to the large or institutional investors identified in the review of property records.

Paul Pittman, founder and executive chairman for Farmland Partners, said claims institutional investors are pushing up prices don’t hold water.

“It’s like an urban myth,” Pittman said.

An industry primer commissioned by the firm notes the demand for food is increasing both in the U.S. and globally, and while agriculture has seen innovation over the decades, land is still essential for producing that food. As global populations rise and demand for food grows, farmland is likely to keep appreciating.

“I know there’s this frustration because farmland continues to appreciate,” Pittman said, “but what’s driving it is global food demand, increasing fundamental land scarcity — they don’t make any more of it.”

He said what he sees driving up land prices more than anything is overall commercial development.

“Because every time that happens, you take another little piece of supply away, and that supply is fixed,” he said.

A TIAA spokesperson noted many of the same points, adding that the growing demand arguably requires at least some institutional investment to provide economies of scale.

“TIAA is one of the world’s largest agricultural investors, and it believes that investments in farmland – done in a sustainable and ethical way – are beneficial to the local economy and farmers, and can help to meet global demand for food,” a spokesperson said in an email. “Through its investments, TIAA helps local agricultural operators and farmers grow their operations, make improvements to land, promote environmental sustainability, conserve resources and acquire new technologies that make them better stewards of the land.”

Pittman and the spokesperson also said it should be considered that several states have restrictions and parameters for institutional investment in agricultural properties.

If anything, Pittman said he believes companies such as his provide the market a safety net for tougher times, ensuring there are still buyers willing to invest in land in the event of things such as interest rate hikes, falling commodity prices or trade disputes.

“What institutions do, to the extent they affect the market at all, is we put a floor in the market in occasional bad times,” he said. “We’ve got capital, we’re ready to invest if the return is good. We’re kind of always ready.”

Though Luftman said his firm is more of a “concierge” enterprise with fewer than 1,000 clients and a portfolio of around 30 Kentucky farms, he too said that if done the right way, outside investment in farmland can benefit both those seeking returns and those with their fingers in the soil.

“I really believe that as long as people who are buying the farms are actually trying to help lease it to good farmers, help produce some scale, I think every single one of my farmers would say what we’re doing is a good thing for them, not competing with them.”

Luftman also said he does not see the specter of a farmland bubble, because he thinks there’s more value in U.S. farmland to be realized, even if the growth in value begins to slow.

“I think what you’re getting for the value, even though some would say it’s inflated compared to 10 years ago, I think it’s very undervalued still,” he said.

Memories and moving forward

Suggesting there is a price bubble for farmland is not an empty threat.

The last time a farm real estate bubble burst the result was the farm crisis of the 1980s. Farmland prices had exploded in the early-to-mid 1970s as the agriculture economy boomed. Many farm operations expanded, but the high prices meant taking out large loans to do so. The 1970s also saw some of the highest rates of inflation in modern U.S. history, so the Federal Reserve responded aggressively at the end of the decade, raising interest rates to nearly 20%. This, combined with a contraction of some commodity markets thanks to the Cold War and other international conflicts, caused farm profits to drop — and land prices with them.

Farm bankruptcies at rates unseen since the Great Depression followed and continued into the 1990s, to the point U.S. bankruptcy law was changed to create a type, Chapter 12, that was specifically for farmers.

The memory of that time, and what’s been happening in the agriculture and overall economy in recent years, was another reason Missouri farmer Darvin Bentlage said he knew it was the right time to sell — and why he wants his children to pursue other things.

“I lived through the farm crisis of the 1980s, and I saw what it did to my uncle. He was one of them that got foreclosed on. I saw what it did to him and the entire family in the entire area,” he said. “And we were set up pretty well to go through the same type of farm crisis. I don’t think we’re really out of it yet.”

Bentlage said while he’s generally pessimistic about the state of the industry he’s spent nearly six decades in, he does think there are solutions.

Whether it’s bills like Farmland for Farmers Act — a bill introduced by Sen. Cory Booker, D-NY, that would limit corporate and institutional investment in farms — or changes to farm subsidy programs that would prioritize family farmers and small operations over large corporate interests, he said lawmakers have the ball in their court.

“I’d like to see our new farm bill get back into supply management,” Bentlage said. “We’re always going from feast or famine deals, and we need to stabilize prices, which would make it a little more attractive for these younger guys to get back in there.”

Otherwise, he said he expects the trends of larger, more corporate farms to continue, because “the small guys can’t compete,” especially if what they can produce can’t cover the loans needed to buy land at current prices.

Luftman, the Kentucky farm investment manager, shared a similar perspective, adding that he thinks setups like his — where the paperwork distance between the investing owners and the farmers is shorter — may actually be the only way to keep family farmers in their profession given the realities of the market.

“I think rather than paint it with a broad brush, ‘Anyone that’s a corporation is bad, anything else is good,’ I think you just got to look at how much acreage or money certain entities control and then what the effect of that is,” he said. “If you completely cut out groups like myself from buying farms, I think the prices of farmland will probably go down a bit, but I’m not sure there’s going to be a whole lot of buyers that are willing to go back.”

About Investigate Midwest: Investigate Midwest is an independent, nonprofit newsroom. Our mission is to serve the public as a watchdog over influential corporations and institutions through in-depth and data-driven investigative journalism.

Copyright 2023 Gray Media Group, Inc. All rights reserved.