Every so often I get asked what I think about farmland prices. Farmland ownership works as a long-term investment. At least farmland can be physically walked upon while stock values in some instances disappear entirely. There have been better times than others for best opportunities to buy farmland, but the timing for selling is most often dictated by other factors such as settling estates and alternative investments opportunities.

Farms are often called family farms because families do own most of them. Our family received the state recognition for having a Century Farm at this year’s Iowa State Fair. We were late in our application as my great-great-grandfather bought the farm in 1896. The farm must be 40 acres or more of Iowa farmland held by decedents of the original owners. The award, given by the American Farm Bureau Federation and the Iowa Department of Agriculture, was created in 1976. In 2024, 277 Century Farm awards were added so that they now total over 21,000.

They also give Heritage Farm awards to families that have owned farms 150 years. They added 162 Heritage Farm awards to a total of over 2,000. As time goes on, the number of Heritage Farms eligible for the award will increase as it took time for Iowa to be settled. We hope that our Century Farm will eventually become a Heritage Farm. Our next farm that could qualify as a Century Farm would do so in 2050.The last farm that I purchased was in 2019. That means it would be 3019 before becoming eligible for Century Farm status. I cannot even begin to imagine what the generations that follow me have to do to sustain it.

My great-great-grandfather paid $5,000 for the quarter that became the family farm in 1896. I paid $12,500 an acre in 2019 for our most recent farm acquisition. Tell me what that farm will be worth in 2119?

Obviously, not every farm gets to be held for a century. Life intervenes. So does death. Frankly, most farms that are being sold are the result of settling estates. Some heirs have no interest in investment in farms and have other places for the money. In the 1980s, there were forced sales of farms that were purchased with too much leverage. I do not think that is the case today. Farmland leverage is relatively low by comparison. Until recently, most buyers of farmland were either investors looking for a better alternative than cheap interest or legacy farmers adding to their existing property. Over the course of the past decade, we had billionaires parking their money in local farmland.

Over the past couple years, farmland values have been surprisingly stable, similar to the housing market, despite interest rates climbing suddenly and substantially. Supply was tight relative to demand and, unlike new homes, they are not making any new farms each year. The spike in interest rates upset the investor flow of capital into farmland purchases. CDs have become competitive in returns again. Commodity prices have tanked but there will have to be a protracted drought in farm profitability before more than the top comes off farmland values. The billionaires who bought land either paid cash or, if any money was borrowed, it was fixed long term at the previous low rates. Farmland lenders did not allow buyers to over-leverage farm purchases by putting dollar limits on what they would lend on farms. It took equity to buy a farm so that you may be able to borrow only $5,000 to $6,000 acre on a $20,000 acre farm purchase. Land prices have a cushion to fall before debt equals equity.

The billionaires and legacy farmers are not selling. In fact, they are likely waiting for the next opportunity to buy to come along.

Other factors will impact farmland values, such as production returns and even tax policy. I am optimistic that the current trough in farm revenue will bottom as soon as next year and profitability will subsequently return. The current price of corn on the day of the farm sale actually means very little relative to whether the farm should be purchased.

Legacy family farmland owners have benefited greatly from the stepped-up basis in capital gains tax policy. We have repriced the basis with every estate in our family so as to avoid capital gains taxes on the longevity of the farmholding. It would be very difficult for farm families to hold farms together without this provision. Without it, there will be fewer Century and Heritage farms in the future as capital gains taxation without the stepped-up basis would force sales.

Quoting from National Hog Farmer magazine, “Stepped-up basis has been strongly defended by agriculture groups for decades. Under current law, the provision allows children and grandchildren to lower their inheritance taxes by updating the cost basis of property to its present-day value. The Democratic platform calls this provision a ‘loophole,’ saying that the wealthiest Americans use it to avoid paying taxes on their assets. The provision will likely be a major fault line in Congressional negotiations over an expected 2025 tax reform package.”

For family farms this could be the greatest threat to sustained legacy farm ownership ever. Current tax law, including the size of the estate tax exemption, expires at the end of 2025. Who controls Congress will greatly determine what is allowed to sunset and what from current tax provisions is extended. The threat of the loss of stepped-up basis, which can greatly increase capital gains exposure or a reduction in inheritance tax exemptions set to expire with tax law sunsetting, may trigger a wave of farmland sales and family gifting before year end 2025 if Democrats win the fall election. Gifting done under the current exemption cannot be clawed back if they shrink the exemption. Changes in tax policy only require a simple majority vote in the Senate. Accounting firms will be inundated with requests for new estate planning assessments if Democrats sweep both Houses of Congress plus the White House, which is certainly possible.