MARKET REPORT: Farms, Land and Ranches - Where is the Market Headed for 2024?
Written by Bart Miller, Managing Broker, Accredited Land Consultant (ALC)
Stability and Tangibility Remain Strong Investment Factors
At Mason & Morse Ranch Company, dba RANCH COMPANY, we specialize in variety of property types across the U.S. including farms, ranches, timberlands, recreational properties, conservation and alternative energy properties, Our professional agents “Live It to Know It” and offer our clients more than 133 years of experience helping find the right properties that fit their investment needs or customizing an exclusive marketing program when it’s time to sell.
In our previous article dated June of 2023, we commented on the Federal Reserve’s inflation report which was trending down from 9% to around 6%. Although inflation has trended down, wage growth continues stubbornly persistent. The current U.S. inflation rate is 3.7% for the 12-month period leading up to September 2023. Inflation rose 0.4% in September from the previous month, according to the latest release from the Bureau of Labor Statistics. The Federal Reserve remains “Hawkish” and while they passed in raising rates at the last meeting, they have indicated further increases are on the table.
As we navigate into 2024, the conversation about rising inflation is now turning towards economic slowdown. A recession or economic softening is on the horizon. As we know, the U.S. economy is driven by the consumer and their propensity to consume. However, savings rates have been declining, credit card balances and delinquency rates are ticking up and bank lending standards have been tight. How this will affect other sectors of the economy will be of interest. Corporate earnings are showing signs of stress as margins weaken. Many companies that increased prices to combat downward margin pressure over the last few years have either run off their customers or maxed out their price levels as expenses remain high. The housing market remains tight, but prices are weakening, mainly due to affordability with higher interest rates. Sellers are holding on to last year’s prices, but buyers are focused on next year’s downward pricing. Smart sellers are getting price realistic now to not miss opportunity or get dragged into a lower market next year.
Overall, while the consumer is facing headwinds and may be poised to slow, keep in mind that consumption started strong and has defied calls for slowdowns all year. While a potential softening of the consumer may dampen economic growth, positives could emerge, namely that inflation and further Fed rate hikes may remain contained.
Throughout the year, the Ranch Company’s sales transaction count was lower compared to previous years, but sales volume remained high. Buyer demand remained strong for quality farms, land and ranching assets. The lack of inventory on the market added to supply issues pushing the pricing trend higher. The stock market remains highly volatile and for the most part an unknown. There remain large sums of cash in the economy and while enjoying higher ‘bank-rate’ returns, inflation is still chipping away at its value. Land remains resilient and useful. Many investors have put stocks into cash and continue to re-allocate into hard assets like farms, land, and ranches.
Average home values may decrease, but affordability due to higher interest rates remains a negative factor. Farms, land, and ranches should remain price positive, however. Seller’s will be interested in re-allocating mature land assets into new opportunities, but only if they have identified a new opportunity first. This means it will be hard for buyers to find quality land investments for sale on the open market using traditional resources on the internet. Using a professional land broker from the Ranch Company can bring forward opportunities that may not be officially on the market.Farmland Market
Agriculture production farmland transactions were brisk into midyear 2023, however, the rising interest rates and continuing decline in grain prices has slowed the transaction pace. Profitability in the farmland sector may improve as inflation cools prices for fuel and fertilizer and other operational costs will come down. Investors seeking a safe agriculture investment to hedge against a recession period will keep demand high for this asset type. These investors will most likely be paying all cash and limiting borrowing costs that dig into investment returns. Tenant farmers that may not have the means to purchase will be looking for active land investors to work with. In 2024, farmland investment will remain an attractive/safe asset to purchase, however, annual returns before tax will be equal to or less than bank certificate of deposits (cd’s). After tax returns will depend on operational deductions and other factors which may push returns higher than institutional certificate of deposits.
Farm, land and ranch asset types are considered a safe investment by many. Unlike the housing market, land cannot be recreated, so the interest rate sensitivity and inventory build-up is much less of a market factor. For buyers looking to secure a long-term and reliable investment purchasing land may be the right decision. Re-Allocating your current real estate assets to one or more of these property types now could be opportunistic.
With the demand for such assets and the increase in overall price per acre the annual operational return continues to have downward pressure towards the 2-3 percent annual returns, but keep in mind it’s an asset type that also helps feeds the world and carries with it appreciation. It rarely decreases in value from decade to decade.Ranchland Market
Privately owned range and pasture lands makes up over 27% (528 million acres) of the total acreage of the contiguous 48 states, and these lands constitute the largest private lands use category, exceeding both forest land (21%) and crop land (18%). Production costs are a factor in operations and people are continuously evaluating better ways to stabilize their cost structures, including adding more pastureland as an offset to lowering the mechanized feed production that exists. Health factors have added to the demand for grass-fed beef and carbon sequestration have put both grassland and timberland in the spotlight. Tightening cattle supplies as a result of the long-term cattle cycle has cattle and calves headed for record breaking price levels.
In 2023, ranches comprised of range and pasture lands for grazing cattle and other livestock saw the overall appreciation rates slowing and have stabilized depending on location across the West. Providing that inflation continues to flow and that interest rates will remain relatively high; we see prices being very stable. Balance sheets of ranches are generally very strong and as such we expect that many of the ranchland transactions will come from neighboring purchases or an existing operation relocating for a larger operation or more favorable economic structure. As always, we will continue to see cases where live events trigger transactions and folks will move due to family dynamics.Recreational & Lifestyle Properties
Depending on the location and overall recreation lifestyle use, this asset type has seen considerable upswing in valuation. While inventory remains tight, we are seeing pushback from buyers on the valuations. Nonetheless, if you have the means and you want something, you buy it. Your investment timeline will ultimately be the main factor. As a long-term hold, recreational and lifestyle lands offer a lot of upside opportunities and enjoyment of use at the same time. The rural lifestyle rush created during the pandemic is over and high interest rates have taken a lot of buyers’ demand out of the marketplace. As savings rates decline and interest rates stay comparatively high, we may see a needed increase in inventory. For the moment, we are continuing to see cash buyers moving into the recreational market due to simplicity of management and private enjoyment. At some point, the cost of owning a property outweighs private enjoyment and these properties can come back on the market as fast as they expired. Many western states are experiencing a massive migration out of California into other western states. In other areas of the country rural settings just on the outskirts of a city are seeing prices stabilize or in some cases dipping between 5-10% due to lack of demand. The Ranch Company operates in more than 12 different western states. Our agents know the territory and are ready to share their knowledge and market conditions with you.
Buying or Considering Selling, Use a Professional Land Broker
Deciding to invest in a farm, ranch or piece of land is a serious decision. Finding a quality property for the right price is essential to the overall enjoyment and use of the property along with a return on investment. On the other side of the transaction, if you are a property owner and are considering a sale of your farm, ranch or land that’s been part of a family legacy is a serious financial and emotional decision. With inflation impacting the value of cash, economic uncertainty, recession talks and tax code changes, now more than ever, is a time to consider working with our professional farm, ranch and land broker to sell and re allocate the sale proceeds to another asset. Our brokers “Live It to Know It” and that means our brokers work hard to match our buyer clients with the right property. At the same time, we work equally hard to help our seller clients market their properties to achieve their goals. We have sat at the same family table working out the various estate decisions needed to sell property and transfer equity from one generation to the next. Therefore, rest assured when working with one of our brokers we have the experience to understand the value of your property but also the financial and emotional impact it may have on all family members.
Bart Miller, ALC
Mason Morse Ranch Company