The land market is in many ways a normal supply and demand driven market place. The amount of land for sale in a local market at any one time is balanced against the number of available and interested buyers on the other side of the equation to influence price. Of course, there are other factors that come into play to determine price with some being property specific and others being on a broader economic level.
Over the past several years, there has been somewhat less good quality cropland for sale than average with 2020 seeing even less for a number of months after the Covid-19 outbreak. Currently, there is additional farmland coming up for sale once again, with part of that being the normal seasonal upswing and part being people who have been thinking of selling deciding to go ahead and sell. With the supply of land for sale pretty well known for now, what is happening on the buying side?
In most areas, farmers and ranchers buy the larger percentage of land that comes up for sale. Individual investors typically make up most of the balance of buyers. This will vary by region and time frame, but remains fairly standard overall.
Today, we are witnessing a growing interest by individuals and investment funds in owing land. Part of this interest is due to the effects of Covid-19 on their investment psychology and the desire to invest in a stable, long-term real asset. People are thinking about the food supply chain and sustainability of our food supply and deciding that they want to own an important part of how our food is produced.
Institutional investors and investment funds have similar reasons for owning farmland. Some have a shorter investment horizon of seven to ten years while others are looking at land as a long-term hold. The cash on cash return might not be as good on land for investors compared to other assets, but with longer term appreciate potential and the stability in rental occupancy, farmland is a good hedge for them.
These large investors also are interested in having a presence in the food supply chain as they are realizing the importance of the farm to table stability of our food and fiber.
The good quality land market remains in balance with the lower supply and enough or in some cases, growing buyer interest. This is one of the factors that has kept land prices steady over the past several years.