Why 2024 Will See a Strong Farmland Market

Mar 12, 2024

Farmland values seem to be holding their strength in 2024, continuing the growth trend we’ve seen over the last four years. But the challenges the agriculture industry is facing—high inputs, lower commodity prices, global disruption—why is the market remaining so bullish? 

Some of the major factors include: 

  • High commodity production yields across all major crop categories in 2023 

  • External economic factors encouraging investment in farmland as a hedge 

  • Growing transparency for landowners as to their land value, enabling fairer and more objective bases for lease negotiations.

Let’s walk through exactly why we’re holding our prediction that 2024 is seeing and will continue to see a strong farmland market, and what landowners can do to take full advantage over the coming year. 

Signs of strength in the farmland market

In 2023, land values continued to be strong, not softening from 2022. In some cases, they have even continued a slight upward trend. And according to recent data, there are some signs that farmland will hold its value this year. 

This strength is part of a broader trend over the last three years, where farmland value has been steadily increasing in value. See the following from USDA NASS: 

Image source: Farmdoc Daily

Continued strength among the farmland market would continue this growth trajectory. But even if there was an unexpected cooling, the likelihood of dropping to pre-2022 levels is unlikely. As such, farmland values can be expected to remain in a strong position. Here are some reasons why. 

Strong crop yields

We’ve seen impressive crop yields in 2023, despite drought conditions in some parts of the country. This is due to a variety of factors, most notably advancements in precision planting, applications, seed genetics, and harvesting technology. 

As farm input costs continue growing into 2024, these strong yields are critical for maintaining, even growing, farmers’ ROI. If they’re still able to offset input costs into 2024, this is likely to have a continued positive impact on farmland value. 

High farm incomes

In fact, that positive ROI mentioned above is precisely what we saw last year. Median farm incomes increased in 2023 to $99,523 per year, an increase of 4.3 percent. The more profitable the farm, the more lucrative it looks as an investment, which increases its value. 

Diversification & hedging

For many investors, farmland acts as an excellent hedge against external economic factors. Although economists anticipate inflation to cool in 2024 and 2025, any number of external factors could result in economic instability. 

As such, many investors use farmland as a hedge, namely because it’s a tangible asset in limited supply, which supports its value despite uncertainty in other sectors of the economy. The increased demand from investors also drives further value. 

Cash rental rates

USDA reports strong cash rental rates in 2023, increasing an average of $7.00 per acre. This influences landowners willingness to invest in this asset, as they’re able to use it to drive greater income. As we’ll see below, strong cash rental rates are key for landowners to maximize the value of their farmland assets. 

Why does a strong farmland market create a challenge for landowners?

Although farmland values will hold their strength in 2024, it’s not necessarily good news for landowners. While the additional value is a good thing, it also means that property taxes and other carrying costs increase as well. 

So unless you’re increasing your cash rental rates to keep up, your expenses will increase in 2024. 

Unfortunately, common practice for negotiating cash rental rates does not favor landowners. Rather, rental rates are based on the USDA’s published figures, which are themselves based on self-reported data from farmers. 

So although indirectly, farmers are setting the rates, not landowners. In no other sector of the real estate market is this the case. 

Here are some of the major weaknesses in USDA published cash rental figures: 

  • Inherent weaknesses of surveyed data. USDA published figures are based on data captured through farmer self-reporting, and farmers have an incentive to keep the county average low—because a higher county average will drive up their rents. As such, they may underreport their rates.

  • Limited demographic diversity. While USDA figures give a good sense of broad trends, you can’t glean any information specific to a particular piece of land. Above-average productivity, highly profitable crops, high soil and land quality, well-maintained irrigation infrastructure, and other factors can make the land more valuable than the county average.

  • Outdated information. USDA figures are based on ten-year county averages. This means that even if your land value spiked this year, odds are your cash rents aren’t keeping up—because USDA is still factoring ten-year-old prices into their averages.

  • Positive feedback loops. The fact that farmers report cash rental payments to the USDA, which are then used as the basis for determining the fair value of a cash rental agreement in following years, creates a positive feedback loop. 

How landowners can offset carrying costs from increased farmland values

Often landowners settle for subpar cash rental rates because they don’t have a good sense of the true value of their farmland. To change the status quo, farmers need tools, resources, and information to be able to negotiate from a position of strength. 

CommonGround’s CashRentstimate proprietary algorithm calculates the real-time, objective value of a piece of farmland. It takes into account over fifty different demographics to make this calculation, including:

  • Crop-by-crop historic yields

  • Current grain prices

  • Weather & temperature

  • Soil quality

  • Irrigation quality

These data are then analyzed by a multiple linear regression algorithm, a machine learning technique that finds the most powerful variables and weights them more heavily. Because different states have different priorities, we’ve tailored the CashRentstimate to specific conditions and predominant crops within 20 individual states. 

With access to this information, farmland owners can offset the increased carrying costs of stronger farmland values in 2024. This enables stronger financial positioning and security in your portfolio over the long haul.

Don’t wait to unearth the true value of your farmland. Get your free CashRentstimate today.