June 10, 2019
Location, location, location is a guiding principle of real estate. It is true for the land market as well. Not only are there important perspectives and differences in each local land market, there are region wide characteristics that make the land market act differently in one area compared to another. Buyers and sellers of agricultural land have to be aware of regional differences that can affect purchase and sales prices of individual tracts of land.
For instance, the highly productive Delta region, encompassing ag land from the bootheel of Missouri to Louisiana for a wide swath on either side of the Mississippi River, did not see land prices escalate as far as the Midwest region during the recent run up in land values. There are a number of region based differences that cause the land market to react somewhat differently than other regions. The direct cost structure for producing commodity crops is typically higher for farmers in the Delta region compared to others due to a longer growing season requiring more tillage passes prior to planting and after harvest to control weed growth. Several higher cost crops such as rice and cotton are in the rotation mix, plus there is the expense of irrigation on most every highly productive acre which increases operating costs. Also, land ownership structure has tended to larger tracts of land, which changes and limits the pool of buyers and sellers of ag land in the region influencing the price that land trades at.
As you move to the southeastern US, covering a diverse area from Virginia to Alabama, the land market is influenced by a different set of circumstances. Tract sizes typically are smaller and have a combination of tillable acres and timber or pasture. The recreation aspect of land ownership comes into play more as some buyers may be more interested in their use of the land instead of the farming of it. Also, the value of the timber on a tract of land becomes a part of the investment decision often being as important as the farmable acres. Buyers and sellers in this region are somewhat different than other mostly cropland areas with somewhat less aggressive farmer buyers and more local owners of the land in much of the region.
The final example of regional differences in the land market is the irrigated areas of the Pacific Northwest. The wide range of high value fruit and vegetable crops supports generally higher land prices in those areas as higher revenues and rents are capitalized into land values. Costs and risks are escalated in comparison to traditional commodity crop areas. Landownership and transfer has been influenced by water rights and restrictions as well as the fact that some of the region was not developed for intensive ag production until the arrival of irrigation water.
Whether one owns land in one of the many ag regions of the country and is thinking of selling or a person is considering investing in ag land and is not set on a specific area, it is critical to understand regional and local dynamics of the land market. In either situation, it is important to have a trusted advisor or representative who has the boots on the ground understanding of the land market to guide the sale or purchase of ag land.
Senior Vice President - Real Estate Operations
|Category: Agricultural Real Estate News|