The Past:
What do you think of when you think of farmland? Do you think of memories from the past either growing up on a farm or maybe a family member or acquaintance that is associated with farmland? Do you think of the world's food supply or how products are created to power the world? Maybe you think of a certain company or brand that operates in the farmland space or you might think of farmland as an investment tool, business, or potential income source? Farmland can paint a picture that is very different among the population. Some have never seen or touched farmland or know the potential it holds yet they will still have an opinion.
The Bible refers to the soil, one hundred and twelve instances. I think back to my first thought of farmland: Genesis 3: 17-19 where it states “Cursed is the ground because of you; in toil, you will eat of it all the days of your life”. Thirty years ago, when the general public thought of farmland they most likely had a much different view. Most likely a view of an older generation cultivating the land with early equipment and livestock at all the rural homesteads. Some may have a view of their grandpa's old 2-cylinder tractor. Members of the society have different knowledge levels when it comes to agriculture. Some are very versed and others know very little. Soil, production, equipment, genetics, computers, money, and methodology have pushed farmers into the new age of technology out of necessity. The days of remembering a single bottom plow and horses breaking the sod into a seedbed are becoming far removed.
In the United States, it is estimated that there are 254 million acres of tillable soil (farmland). Many landowners started by staking their family's plot of land; by settling or purchasing a farm for $500 or less per acre. Over the past 50 years, I would assume most landowners have purchased the land out of love for farming or family. Most farmers used the farmland to grow what they needed to eat. Eventually, they would utilize more farmland to grow what they needed as well as generate income with the balance. I don’t know of many farmers that purchased a farm thinking to themselves I will become a millionaire someday. When we think of farmland we have to think of the first part of the word “FARM”. When we think of farms we have to think of the actionable task of “FARMING”, and when we think of farming we have to think of how farming is accomplished “THE FARMER”! Farmland has always had a direct connection to the farmer. The person that would cultivate it, fertilize it, and care for it in order to produce and nourish it!
The Present:
Let us take a step back to 1870. In the past farmers for the most part owned the land they operated, but as time progressed the tenant farmer evolved. As tenant farming evolved, sharecropping was a very common method of the lease. Dividing the crop produced based on the work performed could also include cost-sharing inputs. Landowners in the present day primarily rent out the farmland for a cash payment. According to the USDA, more than one-half of all farmland is rented to a farming operation. Remembering that in the past the equation/relationship was farmland = farmer, in the present, a line of separation has been added to the equation, the equation is farmland = income = rent = farmer.
Today's farm operations are …. (So many words could fit here.)
Honest, Progressive, Hardworking, Investors, Brokers, Mechanics, Carpenters, Inventors, Bankers, Aggressive, ….. etc… etc… Essential!
Present-day operations are now farming thousands of acres with new technology-enabled equipment that helps us get the job done faster and more efficiently. From RTK GPS to hydraulic downforce for exact seed depth, to seed coating and genetics; so much has changed in the past 30 years of farming. Among all the items that have changed, the biggest change that sticks out in my mind is “risk”. We use to farm 300 acres priced at $1500/ac, with $2 corn, and equipment that totaled $750,000. Today we have increased risk; farming thousands of acres priced at $10,000/ac with $3-$7 corn, and equipment that totals millions. Money is made in the margins; my question is … are we making that much more margin concerning the risk? Some would argue risk is somewhat mitigated due to crop insurance, but the risk is still fueled by a lot more dollars.
We are at a place in time where we still have “older generation” farmers that farm 600 acres with an IH 1586, an 8-row planter, and a 4 row combine. We have “new age” farmers that farm 20,000 acres with 5 combines, 4 high speed - 24-row planters, GPS guidance, and a team of hired help that includes owners, workers, mechanics, lenders, seed scientists, agronomists, technology specialists, accountants, commodity brokers, investors/ financial backers, and vendors. We have come so far with equipment, leases, soil science, crop science, finances, and farming practices, it makes me ask the question, “Have we changed what farmland means?”
Farmland has been a useful source to produce a commodity. Is it now a commodity itself? The difference is, unlike row crops we cannot produce more of it. Which makes it one of the world's most precious commodities. For the “Old Generation” Farmer it is still the short equation/relationship of; Farmland = Farmer. For the “New Age” Farmer it has become a much longer equation that includes a few new words;
Business = Farmland Ownership & Land = Business
There is a business balance on each side of the equation that meets in the middle. No matter what generation of farming you come from, both the landowner and the land stewards have evolved into current-day businessmen.
We now use the land for development, wind generation, solar farms, food production, and it assists us in producing carbon dioxide through plants.
We currently are in a passionate time when it comes to farmland. Farmland prices have been trending upward since I have started working in agriculture. An overwhelming majority of farmland is paid for free and clear which means there is a lot of equity and cash in the outliers that will keep the price of land strong. People that are buying farmland are buying it from a position of strength. There is also a subset of farmland buyers that are moving money from other investments into farmland. They all have an interest in land ownership, and they all want to buy more.
We have the perfect storm for buying farmland that has been building up over time. Markets do not like uncertainty … but after the pandemic, I feel that all people realized they had to set their own level of certainty. We all had to choose to wear a mask, keep working, go into the public, protect our families, or get a vaccination. We as farmers have always been resilient. We listen to what others say, but ultimately, we gather all the noise in the background and forge ahead with our own decision.
“Markets are Attitude”:
We have a world that has been limited by trade agreements for the past years. South America with a drought leading to a lower supply. We have China with an increased need for commodities. We have MFP and PPP payments that were awarded to encourage spending. We have historically low-interest rates from our lenders. We are coming off of a pandemic that made for uncertainty in the world where people were pent-up and not able to spend money. All of these factors have raised the price because of the demand for our commodities. We have a renewed attitude to thrive and succeed.
The Future:
Some economists comment that currently, we are seeing the start of inflation. We have seen raw materials like steel, lumber, petrol, and others rise in price. The general public is reluctantly adapting to the higher prices to continue forward progress & normalcy. Subsequently, we will see all products rise in price. Vendors will be forced to raise the price of their products due to the raw materials they use. When the general public accepts the higher prices I don’t feel the vendors will lower their prices. Remember money is made in the margins, the question is how high can we make the margins before people stop buying.
Owning farmland is an attractive strategy for investors. As we look at the new/longer equation to farmland that includes business on both ends, farmland becomes the commodity. With more and more absentee landowners that are becoming farther removed from agriculture, it will become less and less of emotional decision making, but more and more business decision making.
In the future, technology will keep thrusting us forward. We have seen online solutions for lending, renting, selling, and managing farmland along with many other aspects of life. We have new start-up companies like Farmland Finder, Tillable, Acrebin, Granular, Growers Edge, Tractorzoom, Farmland, and more that will evolve to allow farmers to use & manage the data that comes with farming. We have software that will allow us to track, study, analyze and write prescriptions for our soil and crops. We have software that will allow us to market our grain, equipment, and more to the entire world. All aspects of farming want our data! Soil scores, planting dates, nutrients in the soil, microbes, planting speed, seed depth, carbon production, PH levels, food sources, H3A, water-holding capability, and so much more. Data is the currency of future farming. As we forge ahead into the next generation of farming data will be very important. Data helps us make decisions for the future, but who will help analyze the data?
Let's pretend for a second that the government requires each member of society to make up for their carbon footprint. Each one of us as human beings living on this planet creates waste. What if farming was a way to pay off our carbon footprint? What if each person had to own shares in a forest or farmland that would allow them to balance their footprint? If each person/ company/ industry was responsible to show credit for their waste, the value of farmland will inevitably be more valuable and will change from a usable source to produce a commodity to something new.
Don’t get us wrong … farmland will always have a direct connection to the farmer, but as we look to the future we see change. Mandy Hale said it best, “Change can be scary, but what is even scarier is allowing fear to stop you from growing, evolving, and progressing.”
The future is uncertain … but just as the bible said we will “work the land all the days of our life”. The question that remains is “What will the highest and best use be for?”
IAA Chair of the Board
Owner/Auctioneer
Whitaker Marketing Group
Colton Lacina