ICYMI: An Overview of Farmland Values in the US with WIA Summit Speaker Bruce Sherrick
By Michelle Pelletier Marshall, Women in Agribusiness Media (October 31, 2024)
We had more than 65 speakers at the 2023 Women in Agribusiness Summit, which was held September 26-28 in Nashville, Tennessee. Topics were geared towards helping attendees learn more about navigating the nuances with doing business and marketing to all generations – think Ag to Gen Z; to providing guidance on leveraging the co-op model or understanding the disruptions in transportation and how to navigate around them; and, to learning to negotiate and write your own success story with our keynote speaker Meggie Palmer. See the full agenda to see all of the topics covered.
In case you missed some of the content – like Bruce Sherrick’s U.S. Farmland Values presentation – WIA Today will be featuring key sessions and interviews from the event over the next couple months.
Today, here are highlights from the podcast Insight into Farmland Values: A Comprehensive Recap & Outlook that WIA Summit speaker Bruce Sherrick had with Chrissy Wozniak, producer/reporter of North American Ag, prior to the Summit.
[Chrissy Wozniak] My guest today has spent his life immersed in the world of agricultural economics. He served as presidential nominee on the board of Farmer Mac, where he was chair of audit. He teaches undergraduate and graduate courses in applied finance and financial modeling. He has developed programs to help make crop insurance programs work better for producers across the U.S. He also helps build information systems for ag asset markets and has developed extensive data resources to better understand farmland values. He's going to be speaking in this year's Women in Agribusiness Summit in Nashville, Tennessee, in September on the topic of us farmland values. So that's what we're going to be talking about today, from Champaign, Illinois. I'd like to welcome director of TIAA Center for Farmland Research & Fruin Professor of Farmland Economics, University of Illinois, iFAR-LLP, Bruce Sherrick. Welcome, Bruce. And thank you so much for being here today.
Let's start out by telling us a bit about a bit about your background. Did you grow up in agriculture?
[Bruce Sherrick] I did. In looking backwards, I realize now that I had one of the luckiest experiences possible. I grew up as a farm kid on a small farm in North Central Ohio. Of course, I think a lot of farm kids grew up thinking, gosh, I have to work all the time and my friends maybe don't. But it turned out to be a great laboratory. My parents were very experimental. We grew large number of crops and had gardens and a few fruit trees along with sheep, pigs, a few cattle, chicken, and even a few guineas. It's a great background and my love of agriculture started there.
[CW] What role does TIAA Center for farmland research play in supporting farmers and their financial management decisions?
[BS] At the University of Illinois we have a large project called Farmdoc. farmdocdaily publishes one original research element per day. It includes tools that producers or folks interested in agriculture can use to assemble in one place a set of resources that we think of as being decision centric. The TIAA Center is one element of that that is focused on farmland values, with the tagline “Advancing Farmland Markets Through Research and Information”.
The Center itself is best described as being interested in anything that affects farmland values. So if it's interest rates, or inflation, or the greening of the energy supply in the U.S., or crop insurance or the current weather, we tend to have an interest in it. We also track and work very closely with the Illinois Society of Professional Farm Managers and Real Appraisers (ISPFMRA) to help with annual documentation of what's really boots on the ground level documentation of what's happening in farmland markets, as well as with the National Council of Real Estate Investment Fiduciaries (NCREIF), which has the largest and probably most frequently referred to indexing system for farmland returns in the U.S. For any aspect of the farmland market, our goal is to remain current and understand the implications and help provide what we think of as unbiased and without-an-agenda information that will help provide either understanding or aid in decision-making.
[CW] How can farmers effectively use this data and research to optimize their operations?
[BS] We have some seasonal items around crop insurance sign-up season, we have a large-scale program that you can go to for pre-quoting your own crop insurance and selecting products that might make the most sense or evaluating how it might impact your bottom line. Or if you’re negotiating a new lease, we'll have lease forms; or you're wondering how ethanol might affect the demand for corn, we'll have comments on that. We think of farmdoc as decision-centric rather than location-centric information. And if there's not something there, email one of us and we'll put it into our agenda because we're always looking for the next day's article.
[CW] What insights can you share about the current state of the agricultural sector and potential challenges or opportunities for producers?
[BS] It may sound cliche, but every moment in time is a unique moment in time. And it's a very interesting moment in time right now because we've come through a two-and-a-half year total bull market run in land values, had a couple years of pretty good income, and prior to that a couple of years of fairly strong payments from market facilitation payments to CPAP payments and other things, both with the trade war initiated support and other forms of ad hoc payments that came to the agricultural sector. That led to an improved balance sheet by farmers. At the same time, we had extremely low interest rates primarily because of policy implemented during the pandemic to try to hold interest rates low and spur economic activity. This created kind of a perfect storm for farmland as the major asset class. Ag as a sector has now crested the $4 trillion mark in the U.S. so it's an incredibly substantial industry. A lot of folks who aren't involved in agriculture, maybe don't appreciate the enormity of it. But this is with only about 2 million farms, and perhaps only half that many that are of commercial sale.
You have this incredible concentration of additional liquidity in a fairly limited market that has supported prices. And inflation is generally a positive thing for farmland in the long run so when the prospects for inflation began to become more apparent, prior to the Fed hiking interest rates, farmland markets started really picking up and really moving up rather rapidly. In the prime agricultural center of the country, farmland values up 25 to 35 percent in an 18-month period were not uncommon to see at all. Now we've entered a period of additional uncertainty because of higher interest rates, inflation, a little bit of a recovery in the world trade, a little extra pressure from Brazil in a couple of ways, and a kind of a leveling off of expectations about future income, but still in a very, very healthy state. Input prices for the last couple of years were through the roof and those who have come back in a little bit. Going forward, it really is a question of what will be the impact of the additional spend on the greening of energy – not just ethanol but locations for wind and solar and sustainable aviation fuel, and renewable diesel and things that are adding to the demand side for agriculture, kind of juxtaposed against higher interest rates and recovered stocks.
If the Ukraine/Russia conflict ends sooner than later, maybe there's a restoration of part of the supply side from Ukraine. I think it's a period of uncertainty that’s always in agriculture; you plant something, and then you hope for rain. It's always been an industry that's built around accepting uncertainty. But I think given the forms of monetary uncertainty we have in the U.S. and worldwide uncertainty around trade, it's a little higher than it has been in other parts of my career at least. While I'm still fairly optimistic, I would say my confidence interval around my own estimates is a little bit wider than it used to be.
[CW] What role do government policies and regulations play in shaping this industry? And how can producers stay informed about these policy changes? And if they don't care about Farm Bill, why should they?
[BS] I think it's important to recognize there are few primary forms of government participation in agriculture. The one I'd start with would be crop insurance. Crop insurance has expanded and evolved and become an absolutely critical cornerstone in risk management for farmers, providing revenue protection in many cases that many other industries frankly don't have.
A second title in the Farm Bill is the conservation title. The conservation title affects more things than people sometimes understand, such as some issues related to management practices or cover crop usage, but kind of an allocation of funds around what we produce, how we produce, and what the impacts on environmental and other situations might be. There are also credit titles in the Farm Bill. Farm Credit System, while not being specifically an element of the Farm Bill, is also a federally sponsored to some degree.
By far though, in terms of dollars, the largest portion of the Farm Bill is in supplemental nutrition assistance programs or SNAP. These nutritional support programs have a couple of effects. One, it's a source of demand for agricultural products and if you have food demand, the flow-through effects of having that to the agricultural sector are supportive. And secondly, it's a social safety net program, but also very broad participation in certain rural areas and certain parts of inner cities as well. I think that is sometimes overlooked has been such a critically large part of the Farm Bill.
[CW] You touched on the big factors influencing farmland prices in the last three years. What about regional issues? Do you have any insight on that?
[BS] I think agriculture has the uniqueness that where you are largely determines what you produce. If you're in the Corn Belt, Illinois, Indiana, Iowa, Ohio, southern Minnesota, you're likely to have access to corn and soybeans. You're going to grow almonds and pistachios in one particular region in California, you're going to have apples predominantly in Washington, and so on. The end result is that you end up with regionalized markets for agriculture.
What's fascinating to recognize is that the performance of agriculture in a long-term sense has been remarkable. It's the only industry that, and I don't have the exact quote but Secretary Vilsack said it… something like, ‘agriculture in the last 50 years now produces twice as much output with half as many inputs’. And in feeding a growing population where the demands are growing exponentially, it's nothing short of an absolute, miraculous that most of us are not going hungry, and we have the most plentiful, cheapest food supply in the world.
[CW] Can you share any insight on how geopolitical and economic factors such as trade policies, inflation, global wars, etc., could impact the future value of farmland? Is it looking positive right now?
[BS] Well that's a more than a $64,000 question, literally and figuratively. It's increasingly clear that the world population doesn't move around much. If you took a map of where people live on the planet, 50 years ago, today, and as projected 50 years from now, it looks exactly the same – just the scales are different, such that instead of each dot representing 20,000 people, each dot now represents 30,000, and then 40,000. So we're going to live in very fixed locations.
Secondly, the parts of the planet that are terrestrial places where we can grow things – those are fixed as well. When you realize that you're going to grow the world's food on a very small fraction of the world's surface and the rest of it is going to be a function of trade, then we have to ask, ‘how do we get food where it’s consumed?’.
What are the standards of living demands that result in trade, and result in the value of a bushel of corn in say Western Africa, as opposed to Northern Europe, because you had to grow it somewhere else? Those kinds of questions impact and determine a lot of where the future values reside in farmland values.
I think the long-term thesis is unchanged, and that is, to meet the food, energy, and increasingly environmental needs of a growing population. Agriculture will not shrink in importance, even if it shrinks in terms of its visibility because it succeeds.
The thesis for the demand is very strong for farmland in the long run. Predicting next year is a little harder. As inflation becomes more certain and we learn a bit more about the response of fixed factors of production to nominal price level, we'll know whether there's going to be a continued uptick in farmland values or not. But it’s a very positive long-term story nonetheless.
[CW] So what are some of the opportunities that you think growers should be embracing 2023 and beyond?
[BS] I personally have small shares of interest in farms and have tried very intentionally to get some exposure to different parts of the country as I don't feel like I should be entitled to teach students if I don't have a little skin in the game myself.
I think the technology around agricultural production, and I want to be very clear about this, I don't think we're about to have some remarkable breakthrough that will be forever-changing technologies, even though agtech and agribusiness around agtech has really had a lot of remarkable improvements: auto steer in tractors, improvements in genetics, and the ability to do things with very safe herbicides compared even 20 years ago. Those are those are things that are literally world changing. And the wheat breeding program from Norman Borlaug may have saved a billion people who knows. These are all things that I think embracing rather than objecting to need to be part of a producer's at least openness of mind. The slow evolution of technology in agriculture has been absolutely astounding. Technology in agriculture is collapsing the inefficiencies, and they go away and we don't really notice it.
I think the opportunities are numerous and to just keep being open to the change and being able to adapt.
[CW] You're going to be at the Women in Agribusiness in Nashville this year in September. Tell us about what you're going to be talking about there.
[BS] The most fun thing for me is to be able to document, understand, and present what has happened historically in agricultural markets. And history is filled with great examples of where we're headed and where we're going and how to make connections. At the same time, in the last 15 years, I've become increasingly engaged with agtech so being able to make the case that agriculture is still investable, how those you're changing the role of agribusiness on the side, where agtech and agribusiness are, in fact, overlapping, and where they're not. And that generally is a fun conversation. When you take a little closer look at, pun intended, you peel your own onion back a bit and find out that the industry that you're in has a lot of other layers. I think that's one of the most fun learning moments possible.
[CW] Why do you serve this industry? What are you most passionate about in all of this?
[BS] I'm the luckiest guy that I know in terms of accidentally having the best possible career in terms of matching interest with opportunity. I grew up on a farm and I didn't know how lucky I was to have that experimental, laboratory-like environment growing up. If I wanted to try something, my dad would say, ‘Try it. Let's see if it works. Learn from it. But document it. Keep track of it. Find out if you made money, find out if you lost money, decide why.’
And that curiosity led to a lot of things that I'm very lucky to have experienced, and look, I landed at one of the top research institutions in the country with an unbelievably supportive team. But my I think my North Star is the economic efficiency of the production system and if we can make food cheaper, more plentiful with doing less in future production of those same things, then I think that's a pretty good outcome. And I thoroughly enjoy the challenge of trying to figure that out.
ABOUT BRUCE SHERRICK
Dr. Bruce J. Sherrick is the Marjorie and Jerry Fruin Professor of Land Economics and director of the TIAA Center for Farmland Research in the Department of Agricultural and Consumer Economics at the University of Illinois. He served as a presidential nominee on the Board of the Federal Agricultural Mortgage Association, or Farmer Mac, where he served as chair of audit. Dr. Sherrick teaches undergraduate and graduate courses in applied finance and financial modeling. He has been recognized on the List of Teachers Ranked as Excellent 16 times and has won Outstanding Teaching awards in both his college and department, as well as the Hughes Teaching Enhancement Award at the University of Illinois, and the College of Agricultural, Consumer, and Environmental Sciences Paul A. Funk Excellence Award.