A picture is worth a thousand words, as the saying goes. This is true when thinking about the performance of the land market over the past two decades. The strength of the marketplace and the record-shattering prices being paid for good cropland have been well discussed and documented in venues ranging from the ag press to Wall Street markets (here, here, and here, for instance). For today, we will let the charts, graphs, and maps tell the story of what has been supporting land values in recent years.

The most important and long-lasting support of strong land values is the underlying income generated by the land. The first graph – from U.S.D.A – shows how net farm income has had two periods of very strong farm profitability during the last 20 years. The next graph (Figure 2) illuminates the fact that U.S. agriculture has experienced the strongest income period since World War II, which is a fundamental reason for higher land prices today.

Figure 1 – U.S. Net Farm Income, Inflation-adjusted. Source: USDA

Figure 2 – Real Net Farm Income 1929-2023

The following map from AEI also demonstrates the strong farm incomes of the past couple of years even without including 2023.

Figure 3 – Change in Real Net Farm Income Before 2023

Large government payments have propped up farm finances from 2019-21, as depicted in the chart below. Payments contributed to the improvement in farmer’s working capital as shown in the University of Illinois/Farm Business Farm Management graphs (figures 4 and 5). The influx of cash from government payments and profits propelled cash available to purchase farmland boosting demand and competitive bidding.

Figure 4 – Government Payments 2012-2021F. Source: farmdoc Daily

Figure 5 – Farm Working Capital Trends in Illinois 2006-2020+. Source: farmdoc Daily

Several other factors recently supporting land values are also in play. One is the limited supply of land for sale as indicated in the 2023 Iowa State University Land Value Survey. Survey notes referenced supply being the number one factor supporting land prices in 2023 in that state.

Figure 6 – Factors Affecting the 2023 Farmland Market. Source: 2023 Iowa State University Land Value Survey.

The other factor displayed in the chart from Purdue University’s Center for Commercial Agriculture is the overall financial strength of the farm sector balance sheet.

Figure 7 – Farm Sector Balance Sheet. Source: Purdue University Center for Commercial Agriculture.

Farmland is generally viewed as a long-term asset and, when valuing any real asset, future income flows should be taken into account when setting a price to be paid for the asset. Future projections for the potential use of soybean oil in renewable diesel, and ethanol in sustainable aviation fuel suggest potentially increased demand for both corn and soybeans creating a scenario for higher commodity prices and farm incomes. These new grain and oilseed demands, along with growing food demand around the world, are being priced into farmland today supporting the current strength.

Figure 8 – Annual U.S. Renewable Diesel Production Capacity – Actual and Projected. Source: farmdoc Daily

Figure 9 – U.S. Production Capacity for Ethanol-based Jet Fuel. Source: Bloomberg.

Wrapping it up

As has been discussed previously, multiple factors have supported higher farmland prices. The question is whether those factors and the future projections supporting today’s land prices will continue or change in 2024?