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Farmland Values Hit Record Highs, Pricing Out Farmers

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Two years ago in Brookings County, South Dakota, Joel Gindo knew he could finally own and operate his dream farm when his neighbor put up 160 acres of farmland for sale. $5,000 or $6,000 per acre is enough for him, Gindo estimates.

But at auction, Gindo was helpless until the price continued to climb and reached $11,000 per acre. That’s twice his budget.

“I couldn’t compete with what people are paying. People are paying 10 grand,” he said. “And for someone like me who doesn’t have an inheritance somewhere and a lump sum of money, it all needs to be funded.”

What’s happening in South Dakota is playing out in farming communities across the country as farmland values ​​skyrocket, hitting record highs this year and often slashing prices for small or novice farmers. , farmland values ​​will jump 18.7% from 2021 to 2022, one of the highest increases in the country. According to the latest figures from the USDANationwide, values ​​rose 12.4% to reach $3,800 per acre. This is the highest since 1970, at $5,050 per acre for farmland and $1,650 per acre for rangeland.

A set of economic forces — high prices for commercial crops such as corn, soy When wheata robust housing market; Low interest rates until recently. Jason Henderson, dean of Purdue University’s School of Agriculture and a former employee of the Kansas City Federal Reserve Bank, said they had converged to create a “perfect storm” in farmland values.

As a result, small farmers like Guindo are now at odds with deep-pocketed investors such as private equity firms and property developers, with some experts warning of far-reaching implications for the agricultural sector. doing.

The booming housing market, among other factors, is increasing the value of agricultural land, especially in areas closer to growing urban centers.

“What we’ve seen over the past year or two is that when housing starts to increase due to new building construction, it puts pressure on agricultural land, especially in peri-urban areas,” explained Professor Henderson. “And that leads to a cascading ripple effect on land prices that are more and more remote.”

Government subsidies to farmers have also increased rapidly in recent years. About 39% of net farm income In addition to traditional programs such as crop insurance payments, the Department of Agriculture $23 billion for farmers hit by President Donald J. Trump’s trade war From 2018 to 2020 $45.3 billion in pandemic-related aid in 2020 and 2021. 2021 is projected to be around 8%. 2022.)

These payments, or pledges of additional support, create a safety net and increase the value of the farmland as it shows that it is a safe bet.

“There is no doubt that the market expects the government to play a role if farmers’ incomes decline, which will influence investment behavior,” said Jennifer Ift, a professor of agricultural economics at Kansas State University. .

More and more avid investors farming In the face of volatility in the stock and real estate markets. Microsoft co-founder and billionaire Bill Gates, the country’s largest private farmland owner, recently Buy 2,100 acres in North Dakota $13.5 million.

Tim Koch, vice president of Farm Credit Services of America, a farm finance cooperative in the Midwest, said a growing number of private equity funds are looking to buy stakes in farmland. Pension funds also see farmland as a stable investment, Prof Ift said.

Farmers have also witnessed an influx of outside interest. Nathaniel Bankhead, an agricultural and horticultural consulting business in Chattanooga, Tennessee, banded together with a group of other farm workers to save up to $500,000 and buy about 60 acres of land. For months, the collective has been repeatedly bid on by real estate developers, investors looking to diversify their portfolios and urban transplants with “delusional farming dreams,” he said.

“The places I see as potential farmland are bought out for cash before going through the process a working-class person has to go through to get access to the land,” he said. And the irony is that they’re my clients, and they kind of hire me to do what I’m trying to do for a living as a hobby.

Bankhead characterized the current situation as a form of “digital feudalism” for aspiring farmers. Wealthy landowners drive up land prices, contract agricultural designers like him to put their vision into action, and hire custodians to manage their lands.

“They kind of lock the person in this new flavor of serfdom. You may be getting paid decently. You have access to it. But it never belongs to you.” There is none.

Tasha Trujillo recently moved her flower garden to South Carolina because she couldn’t afford land in her native Florida. Trujillo grows cut flowers and keeps bees on his brother-in-law’s five-acre nursery plot in Redlands, a historically agricultural region of the Miami area about 20 miles south of downtown. I was.

When she tried to expand her farm and buy her own land, she soon found the price out of reach as property developers pushed up the value of the land and forced out agricultural producers. I was.

A five-acre piece of land in Redlands is currently priced between $500,000 and $700,000, Trujillo said. “So I basically had no choice but to leave Miami and all of Florida.”

“Farming is a very stressful occupation,” she added. “When the land becomes unstable, the situation is 20 times worse.

Small and novice farmers are being shut out, so the latest Agricultural Census says: The average age of farmers has risen little by little Up to 57.5 – Exorbitant land values ​​can have ripple effects across the sector.

Brian Philpot, chief executive of agricultural lender AgAmerica, said his company’s average loan amount has increased as farms consolidate and put pressure on family farms. This could lead to a farm crisis, he argued.

“Do we have the technology and the next generation of people to feed it? Is it sustainable?” he said.

Professor Henderson also warned that current farmers may face increased economic risks as they try to take advantage of high farmland values, effectively betting farms to expand it. did.

“They will buy more land, but they will use debt for that,” he said. “They stretch themselves.”

Economists and lenders said farmland values ​​appeared to be flat in recent months as the Federal Reserve hiked interest rates and soared fertilizer and diesel costs. However, with commodity prices expected to rise next year, some believe the value will remain high.

Gindo, a Tanzanian native who moved to South Dakota about a decade ago, purchased seven acres of land to raise livestock in 2019 and now rents another 40 acres to grow corn and soybeans. increase. Make ends meet.

For now, he’s calm about looking for a farm of his own, even though he dreams of handing it over to his son. It is said that For now, Mr. Gindo is helping out with the farm, so he is refraining from doing so.

“He really doesn’t need me to rent his land,” said Gindo. “He can double it with someone else.”

In Florida, Mr. Trujillo said, the owner of the land where his brother-in-law’s nursery is located has been talking about selling the parcel while prices remain high, so he’s started looking for his own land as well. It is said that there is

“This is a big fear for many farmers and nursery owners who rent their land because when the owner says, ‘Do you know? This year, I’m selling, and you have to go.'” she said.

In Tennessee, Bankhead said he considered giving up farm ownership “many times a day” because a longtime farming friend quit his job.

But so far, he remains on site and remains committed to doing “the work of keeping the land in the hands of his family and showing that he has more to do with this land than sell it to a property developer.” “But the pain of not having a garden of your own and not being able to keep animals where you live is by no means small.”

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