Farmland can be a difficult asset class to participate in as there are significant barriers to entry, one of which is sourcing quality farmland for sale in a highly dynamic market. For the Farmland Investor, access to quality deal flow is essential for building your portfolio.

Peoples Company’s Capital Markets team maintains a database of large agricultural properties for sale across the United States. This database includes public listings found on the open market and off-market listings sourced through brokers, operators, lenders, and other referral sources.

Asset Database at a Glance

The asset database consists of approximately $3 billion worth of row crop and permanent crop properties across 38 states. In general, these properties are greater than 50% tillable or plantable and priced at $2.5 million or higher. Approximately 64% of the farms are row crop properties representing a wide range of crop types. The other 36% consists of permanent crop properties planted to various tree nuts, berries, and fruit trees.

The database also allows us to see who owns farmland. Our data shows that 76% of these farms are owned by local landowners, 11% are owned by absentee landowners, 9% are owned by institutional investors, and 4% are owned by professional farming companies.

Price points range widely across listings with 90% of the farms being priced between $2.5 million and $24.9 million, 7% of the properties in the $25 million to $49.9 million range, and 3% of properties listed at $50 million or higher.

Insights

While not all-encompassing of the entire farmland market, the asset database still offers us a snapshot of large, high-quality properties for sale across the country. By analyzing over 20 metrics on each property, we can monitor market trends as they emerge, offering week-to-week insights that help guide our investment strategies.

Volume

Transaction volume can vary according to region-specific market forces. The asset database serves as an excellent resource for evaluating the current availability of farmland in particular markets and comparing these trends across different regions.

This is apparent when comparing inventory levels in the Midwest and California. The ratio of row crop to permanent crop assets in the database has slowly shifted over the last few years. Regarding asset database properties in the Midwest, we have noticed a significant decrease in inventory levels since the market highs of 2022. This is consistent with greater market trends across the Midwest where there have been limited economic pressures to sell. Many farming operations have been relatively stable over the past 2 years due to stronger farm incomes. Additionally, higher interest rates have discouraged those who would use leverage to buy farmland from entering the market.

Conversely, In California, inventory levels have remained high while sales of permanent crop properties have steadily declined since 2020. This is particularly true for almond properties in the state. Lower almond prices, increased cost to plant new trees, and growing concerns over water security have led buyers to become increasingly selective. While properties with reliable water rights and younger trees entering peak production are selling at a premium, properties that need replanting or have less reliable water remain on the market for an extended period.

Institutional Investor Sentiment

Over the last two years, we have observed a significant increase in farms for sale owned by Institutional Investors. We would attribute this increase to a couple of factors. Higher borrowing costs due to rising interest rates have made holding onto farmland financed with debt less attractive. Additionally, the rising cost of managing farmland has increased, leading to lessened returns. Consequently, this has led institutional groups to sell, realizing profits from previous years when commodity prices were favorable and farmland values reached record highs. This has allowed them to reorganize their farmland portfolios or reallocate capital to sectors they believe have stronger growth potential.

Changes in Ownership

More recently, we have seen a shift in who is buying farmland. As we track sales of properties in our database, we have noticed that fewer owner-operators are buying farmland. Since 2023, farm incomes have declined, and persistently high interest rates have made local farmers less willing to increase their acreage.

At the same time, buying activity among various investors, including institutions, wealthy individuals, and family offices, has accelerated. As farmland prices have softened from the peak levels seen in 2022, these buyers view the dip as an opportunity to enter the market or further expand their portfolios, acquiring land at slightly reduced prices. These groups often have more liquidity and access to capital than local farmers, allowing them to take advantage of these price reductions.

Sale-Leasebacks

Another trend we see in new farms coming on the market is an increase in sellers seeking a sale-leaseback arrangement. As previously mentioned, farmers are increasingly feeling the pressure of higher input costs paired with lower commodity prices. This has led many to seek leasebacks that allow them to continue farming their ground while freeing up working capital to keep their business afloat. With investors in the market looking to acquire farmland, these sale-leasebacks can be mutually beneficial. For farmers, it offers flexible terms, and the ability to expand or maintain farmed acres while reducing the overhead cost of land ownership. Meanwhile, Investors can receive stable income through long-term lease agreements and are able to work with experienced farmers who are familiar with the property.

Conclusion

The asset database offers insights into the farmland market, providing valuable data on larger properties for sale across the U.S. It enables us to track market trends including changing ownership patterns, regional disparities in farmland availability, the growing influence of institutional investors, and new developments in the way transactions are structured. This weekly data allows the Capital Markets team to stay informed on market trends occurring in real-time and empowers us to capitalize on emerging opportunities.