Rising Prices Becoming the Norm
By Becky Gillette
Prices for prime farmland in the Mississippi Delta have been increasing at rates that are great for sellers, but pose problems for farmers trying to extend their acreage or get into farming for the first time. There are a number of different reasons for the higher prices.
“We are actually losing farm acres at a rapid pace,” says Ford True, Land Specialist, SmallTown Hunting Properties and Real Estate, Clarksdale. “Across the U.S. we have lost approximately 50 million acres of farmland since the year 2000 to various kinds of development. The old saying, ‘They aren’t making any more land,’ certainly rings true. Another factor that has driven farmland prices up is large investors and funds recognize the value of owning farmland and have made a big splash in purchasing land here in the Delta.”
Soil types and irrigation are other major factors in the price of ag land. True says sandy loam soils generally will bring more value to a piece of property than clay soils, although the price of both types have seen a significant rise as of late. Farms that have irrigation readily available will naturally be worth more than dry land farms.
“One more very important and often overlooked aspect of value is drainage,” says True. “A farm that is set up well with irrigation and proper drainage will bring top dollar and will be a fantastic long-term investment.”
Anthony Steen, sales agent for Tom Smith Land and Homes, says the cost of renting or buying land has gone up considerably in the past ten years. Five to ten years ago you could purchase dryland for $3,000 to $3,500 per acre.
“And there was not a battle to get it,” says Steen. “Now, I’m seeing dryland at $5,000 an acre or a little more. It is crazy. I would not have thought dryland would have gone that high. In the past 5 to 10 years, dryland farming in the Delta has become more difficult. You don’t know if it is going to rain. Last year we went about two months without rain. If you are a dryland farmer, it is getting to be a gamble every year because of our weather. That is why you see a lot of people turning dryland into irrigated cropland. The price per acre value is up so much on irrigated ground that it makes a great investment to turn your dryland into irrigated land.”
Steen sold a tract of irrigated ground this past year that cost $8,000 per acre in only one week.
“I have heard talk from farmers about being offered $10,000 per acre and they turned it down,” he says. “I am seeing more that these farmers with turnkey property that is precision leveled with irrigation can pretty much get what they want. There are a lot of out-of-state buyers of land in Mississippi because it is cheaper than land up north, like Idaho, Illinois and Wisconsin, where it costs from $15,000 to $30,000 per acre. You can buy 400- or 500-acre places in Mississippi, rent them out and watch prices go up. It is a good investment. Mississippi farmland is price per acre one of the cheapest states compared to up north.”
Recently a family farm in Wisconsin sold for $15,000 per acre. You can buy 150-200 acres in Mississippi for what 50 acres costs in Wisconsin or surrounding states.
Steen doesn’t think Delta farmland will ever match the prices being seen in the north partly because northern properties get snow that provides natural fertilizer. It rarely snows in the Delta now, so farmers here have high fertilizer expenses. Prices for fertilizer have doubled and tripled.
“It is hard when the price for production goes up along with the price to rent or purchase land,” says Steen. “It is particularly hard on smaller farmers who don’t have the acreage to spread out production expenses. It is easier for someone with 2,000 acres than someone with 100 acres. For small farmers, higher prices on equipment, seed, fertilizer and rent make it hard to keep farming and make a living.”
Location is also important. If land is closer to shipping points like the ports in Rosedale or Friars Point, that reduces the costs of transporting crops to the market.
“When a property is an hour-plus drive to a port, you don’t see a lot of corn or beans being hauled,” says Steen. “Further east, we are seeing more potatoes and sweet potatoes being farmed. It is a different type of soil further east.”
Another factor is northern farmland gets more consistent rain.
Sells Newman, who retired after 44 years in farm credit, says there is a lot of risk in farming today. There are good years and bad years, he notes.
“You have to be able to withstand the bad years without having to sell the farm and equipment,” says Newman, who also farms. “It is very expensive to farm. Not everyone can afford to do so these days. That is the biggest problem I see. If you don’t have a strong balance sheet, or your family is not in farming, it is a difficult thing. It takes a lot of capital. In the late 70’s and 80’s when markets were really tough, we learned some lessons about credit. In today’s agriculture world, people have to be credit-worthy. It is tough to be a part-time farmer unless you have a good job supporting it.”
Higher land prices aren’t unique to the Delta. Paul Hopper, Principal Broker for Hopper Real Estate Leaders, Gluckstadt office, says they have seen a steady, healthy appreciation in farmland values and cash rents across the state synonymous with the annual reports produced by USDA.
“Properties are still selling relatively quickly despite the sudden rise in interest rates over the last few years,” says Hopper. “There still remains a ‘cash flush’ buyer pool of individuals and groups that are ready to deploy equity when the right investment property becomes available. Irrigation, land leveling and other value-add improvements will positively affect land values. Additional variables such as crop history, farm size and location can also add overall value to a farm. Hunting land remains an iron clad part of our clients’ portfolios.”
Hopper says their company has recently assisted many landowners in expanding their existing properties, increasing contiguous acreage and resulting in broader conservation and timber management efforts. Borrowing power definitely decreases in a higher interest rate environment. However, Hopper said there are other creative ways to finance land through owner financing and collateralizing other hard assets.