It was the Tuesday after Thanksgiving and Sam Woodrow, Farmland Partners Inc.’s Acquisitions and Management Associate for the Midwest, logged onto an online auction for a farm in Schuyler County, Illinois.
Woodrow wasn’t optimistic about casting a winning bid. After all, he’d been outbid in dozens of auctions in 2022.
Then the unexpected happened. FPI won and added 291 acres of prime farmland to its portfolio. The company paid approximately $7,423 per acre for the land.
Woodrow believes several factors likely tilted the auction in his favor.
The auction’s timing during the holiday season was awkward. FPI already owned several of the neighboring farms, meaning there were fewer local farmers to compete with. And the auction included numerous tracts of farmland, with several selling at high prices before Woodrow’s winning bid, effectively draining cash from the pool of bidders.
“As an institutional investor, it’s hard to compete with a roomful of locals at an auction because the financial realities are so much different,” he noted. “We have a fiduciary responsibility to shareholders, so we’re very careful to not overpay. Established farmers, on the other hand, aren’t as worried about the new property cash-flowing on Day 1.”
Unlike landlords, who usually have only rental revenue to make the deal work, farmers have the finances from their entire farming operation to work with, plus the efficiencies of scale achieved by adding new acres to their overall operation.
Emotion can come into play, too.
“Maybe you’re a multi-generation farmer whose grandparents always dreamed of owning the neighboring farm, or you’re looking to add nearby acres to bring your children or grandchildren into the business,” he explained. “Or maybe you find yourself in a friendly bidding competition against neighbors – there are lots of scenarios where farmers are willing to pay a premium.”
That might explain why so many land price records have been set in recent years.
The one record that everyone is talking about is $30,000 an acre for a farm in Sioux County, Iowa. That auction, which also occurred in November 2022, pitted two local farmers against one another. Just a couple weeks earlier, farmland in southeast Nebraska sold at auction for $27,400 per acre – again to a local farmer.
“In the farmland market, institutional buyers like FPI typically set the floor, not the ceiling,” Woodrow said.
Despite the attractiveness of farmland as an investment asset class, the vast majority of U.S. farmland is still owned by farmers.
More than 60 percent of farmland is owned by the farmer who operates it, according to the U.S. Department of Agriculture (USDA). And that share has been relatively stable over the past 50 years.
As for the rest of the farmland, 8 percent is owned by farmers who rent the land to others instead of farming it themselves. About 15 percent is held by individual landlords who don’t farm – sometimes retired farmers or farm family members – USDA data show.
Corporations account for a little over 3 percent, of which institutional investors like REITs claim just a portion.
In its 2021 primer on farmland investing, Green Street Advisory Group estimated that institutional ownership accounts for less than 1 percent of farmland real estate. For comparison, 10 percent of office and industrial real estate is owned by institutional investors.
That doesn’t mean there aren’t opportunities for large investors. Finding land at an investable price is the key. And that, says Woodrow, takes a lot of good local connections and hard work.
He constantly monitors local markets and speaks with contacts to identify potential purchases. He also speaks regularly with tenants, who often bring FPI new deal opportunities.
And, yes, he still logs onto auctions.
“You never know,” he said. “Every once in a while, you can find a great deal, but you have to show up to the game for the opportunity to play ball.”
Note: This article contains Forward Looking Statements.
