Anyone in the farmland sector has heard the adage that as the size of a farm increases the price per acre typically decreases. Whether you’re an appraiser or other real estate professional, this message seems to be heard throughout the business. While this can be true in many cases, I’ve run across some instances where the theory could be questioned.

The increase in inflation after the pandemic has created an influx of capital to be placed in agricultural real estate due to being a relatively safe investment and hedge against inflation. Many investors placing capital in farmland are family offices or institutional investors that may or may not already own farms. These market participants are often concerned with buying quality land and have a determined allocation of funds to spend. If they already own land in a specific area, they may continue to purchase smaller tracts near what is already owned. However, if they are expanding to a new area or just starting to invest in agricultural land, they may require a larger number of acres to make the investment feasible. These buyers are typically motivated by annual returns and long-term appreciation of the assets and affordability may be less of a factor.

The correlation between the size of a farm and its value tends to be more prevalent among market participants who are more dependent on borrowing money for a purchase. Recent increases in interest rates and decreases in commodity prices have tightened balance sheets, and in return, buyers are becoming more selective in their purchases.

Another perspective is in the recreational land market, which has seen an increase in market participation in recent years. A smaller recreational tract may see a higher per-acre value, although significantly larger tracts that have been well-managed have also seen strong prices due to the amount of time it would normally require to assemble and develop these larger tracts for the optimum recreational user.

The table below includes farmland sales data tracked by the Peoples Company appraisal team that includes auction results from over 800 cropland tracts in Iowa. These sales include land that is at least 85% tillable.

As you can see, the data set does indicate a downward trend in value as farm size increases over 120 acres.

While the data does suggest a drop in value for larger tracts, there will continue to be outliers in the data set for certain market areas.

Data indicates the average farm size in Iowa is increasing with the number of farms continuing to decrease. As the size of farms continues to increase will this correlation between size and value remain significant or will market participants start to seek larger tracts as the size of their operations continues to grow?