Acres & Assets | Navigating Agricultural Land Ownership: Challenges and Opportunities for Non-operating Landowners

Non-operating landowners own almost 40% of the agricultural land across the U.S.  In some regions, a much higher percentage of land is owned and leased out by the non-operators.  This group is vitally important to farmers and ranchers who lease the land and produce the food and fiber that sustains the world.  Today’s landowners, active farmers and ranchers along with the non-operating owners, are faced with a multitude of decisions points concerning their farms.  Some are financial, some are operational, and some are conservation and sustainability focused.  Many decision needs remain the same year in and year out while others are new to owners.

Each generation of landowner, active producers and non-operating alike, face decisions about succession of the ownership of their land.  As agricultural land transfers to the next generation of family, there are usually more individuals involved in the ownership structure and decision making.  Planning for succession and the decisions affecting the transfer are becoming more critical because of the increased value of the underlying asset and the growing importance of food and fiber production for the world’s population.  Legacy and financial reasons come into play for each generation of landowner as they decide whether to keep the farm, who will farm it, and if they should sell.

New to succession of the farm are alternative methods of ownership and transfer.  Historically, land has been owned by individuals or in joint tenancy with the succession plan delineated in a will.  Ownership in a revocable trust has become very popular as one of the advantages of a trust is that it names a successor trustee to carry on management of the asset. 

Newer methods of land ownership and transfer include monetization of the farm into shares or units which can then be divided and passed to the next generation.  One means is to own shares in a REIT (Real Estate Investment Trust) or similarly in a DST (Delaware Statuary Trust) which are treated much like land for estate and transfer purposes except that it is shares that are passed down instead of a specific farm.  Investors can now buy into a farm partnership entity and own a share of a farm jointly with others.  These shares or units can be passed down or gifted to others. 

Landowners are now being faced with a new set of challenges and opportunities that create another set of decisions to be made with potential short and longer-term ramifications.  Longer term questions for a landowner include whether to enroll in carbon sequestration programs or try organic production on their farm.  Decisions about major improvements such as conservation structures or drainage tile, enrolling in multi-year conservation programs, or building grain storage all have longer-term effects on the value of the farm. 

Landowners make other decisions usually on an annual basis.  Determining who will rent the farm including lease terms and rental rates are important decisions made each year or every few years.  Depending on the type of lease utilized to rent to the farmer, landowners may need to look at insurance needs, inputs and  costs, pricing of grain, and how to use technology on the farm. 

Just like producers, non-operating landowners face important decision points around the land they own.  How the farm is owned, how it is operated, how to balance short-term changes with long-term benefits, and ultimately, how to leave a better farm to the next generation of owner are important decisions that need to be made.  Challenges abound as always, but new opportunities are here for landowners.