Who Will Own the Land? Changing Land Owner

Demographics and Investor Interest in Farmland.Land Use Competition

Michael Duffy, Director Iowa State Beginning Farmer

CenterGuelph, ON

November 12, 2009

Investment in ag. Land by Investors

and the impact on land values• Interest is a function of the location, the condition of

the agricultural economy, the condition of the overall economy and individual circumstances

• Because land is in a relatively fixed supply, any time you increase the demand you will increase the price

• Non-traditional demands for agricultural land are having an impact on land values in many locations

• The law of unintended consequences applies to the conditions surrounding land uses and prices today

Basic Assumptions• Perspective will be US and western,

some emphasis on Iowa• Much of the land bought by

investors will be removed from production either for urban uses or for country estates, hunting camps and so forth

• Land bought by investors will be rented

Outline• Background information• Current situation• Land as an investment• Future• Discussion

U.S. Farmland Ownership• 38% of land is rented in 20071999 Land ownership study found:• 54% of the landlords are over 65 years old• 4% of the landlords are currently farmers

and another 22% are retired farmers• 12% of the landlords are self-employed• 53% of the landlords live more than 5

miles from the farm

Land as an Investment

Land Value Study• Assume average land values and rents • Assume average Standard and Poor's

closing value and yearly dividend• Removes land taxes and 13 percent land

ownership fee for management and maintenance

• Uses $1,000 invested to purchase acres or shares. The returns are then used to purchases additional acres or shares and this is the bases for the next years income

• No transaction fees

Conclusions and Discussion

Conclusions• Agricultural land compares favorably to

other investments• The amount of land that is rented vs

owned appears to have stabilized. • The majority of commercial farms own

some land and rent some. Technology and economies of size will continue this trend

• Contracting has limited the amount of large company movement into agricultural land

Parting Thoughts• Farmland owners are aging but it does not

appear there will be a major sell off. What the next generation does with the land will be a key

• The investor demand for land is likely to stay strong and will probably increase. This will be mostly in urban areas and for recreational type demand

• Most land is bought by farmers and they buy it as a part of their estate not as an investment per se

Parting Thoughts• Changing demands for farmland will

increase the value• Water quality and quantity will have

impacts as will energy costs. This will change the structure of agriculture and will change the demand for farmland.

• Land is a unique investment. – “..when it comes to land there are a

1000 economies”. – 90 year old buying land as a long term

investment

Parting Thoughts• Events will always cause ebbs and flows

in the interest for land and land values• It is unlikely we will see a huge shift

toward some form of corporate ownership of farmland. The returns are not as high as other investments, land is held by farmers and becomes a legacy, some areas restrict corporate ownership and smaller investors always want to own land

Parting Thoughts• This is from the point of view of the US

the view for many other areas in the world is quite different

• Many US farmers buying land elsewhere• Many countries buying land to offset

production and other supply risks• Land tenure and ownership

arrangements are quite different and result in a much different perspective regarding what will happen

• In the future Aldo Leopold’s land ethic will become more and more important;

A thing is right when it tends to preserve the integrity, stability, and beauty of the biotic community. It is wrong when it tends otherwise

Discussion