From Soil to Success: The Benefits and Barriers of Farm Ownership

Owning farmland is becoming increasingly competitive, but not entirely out of reach with the help of a custom farm ownership loan. 

Over the past decade, U.S. farm real estate values have increased nearly 40 percent. Rural landowners enjoyed the benefits of their rising equity which served as a hedge against increasing inflation. However, the same market conditions that elevated the position of existing landowners created challenging barriers for farmers looking to purchase land.  

In this article, we break down the benefits and barriers in the 2023 farmland market and discuss how aspiring landowners can use farm ownership loans to overcome those obstacles.  

Why Use a Farmland Ownership Loan? 

It’s a fact of the industry, farmers with the highest profitability typically own at least a portion of the land they operate. Nearly 40 percent of all U.S. farmland is leased. This percentage has steadily increased over the last several decades, as the cost of entry into farmland ownership continues to increase in a competitive market. 

When structured correctly, farm ownership loans can provide a path to purchase that gives the farmer greater autonomy over their land. Through this autonomy, farmers are empowered to invest in their land over the long term without fear of the rug being pulled out from under them. Farmland ownership can also provide financial leverage to offset risk and build wealth over time through different revenue streams, such as conservation grants and cash rents.  

Barriers to Farmland Ownership 

If farmland ownership is so beneficial, you may be wondering why isn’t everyone doing it?  

High Land Prices 

The most obvious barrier is cost. Record farm income combined with a finite supply of land and increasing demand continues to drive up the cost of farmland. For many hopeful landowners, this jump is pricing them out of buying land. 

But there’s good news for aspiring landowners. The first is the expected wave of ownership transfer coming in the next two decades. Over half of U.S. farmland is owned by people who are 65 or older. The historical trend of farmland being passed down to the next generation will be shifting, and landowners are seeking experienced farmhands to keep their farm legacy going.  

Second, aspiring landowners have more financing options when it comes to obtaining a farm ownership loan. Historically speaking, this has not been the case. Farm lenders like AgAmerica are seeing the need for more flexible financing options to help farmers go from lessee to landowner.  

Poor Credit History 

Part of these flexible financing solutions include options for farmers who have faced the volatility of the industry firsthand. Farming often relies on factors outside of a farmer’s control. Weather events, global trade conditions, and government policies can impact farm income. For this reason, some farmers may be forced to miss payments in order to continue running their operations.  

If you have been in this position, there are options. Find a lender that understands the tough agricultural environment and who is willing to look at your entire balance sheet before making a decision. Some can offer loan programs designed to increase your financial strength with low monthly payments.  

Estate Tax 

For those planning on passing their land down, there are additional barriers to keep in mind. Two-thirds of non-operator land is acquired from family. More than half was given as a gift or part of an inheritance, and 11 percent was through a purchase from a relative. With most farmland being family-owned, transferring farmland often involves estate taxes that can become a large financial burden to the next generation when not planned out properly. That’s why partnering with a team of experts to create an effective succession plan is so important.  

Farm Ownership Loans in Action 

No two operations are the same. That’s why farm ownership loans should be customizable and tailored to your specific needs. For established farmers, an ownership loan may be used to expand their operation. For a young farmer, it could be the key to their first tract of land.  

Using a Farm Ownership Loan to Become a Landowner 

In North Carolina, a farmer used a farm ownership loan to purchase the leased land he had been operating for years. He obtained a $1.1MM loan package that was split into a 30-year conventional loan with a fixed rate and a 10-year revolving line of credit. This gave him the funds he needed to purchase the loan as well as additional operating capital.  

Using a Farm Ownership Loan as an Established Farmer 

For a landowner in Washington, a farm ownership loan was the key to purchasing a vertically integrated fruit tree operation. The seller had a tight deadline and wanted to close quickly. The landowner secured a $130.5MM term note to purchase the operation as well as enhance it with climate-smart practices.  

Refinancing Farm Ownership Loans to Overcome Tough Market Conditions 

In Texas, a farmer was transitioning his operation from sugar cane to corn, beans, cotton, and sorghum. Facing high input costs, the farmer refinanced his existing farm ownership loan to obtain $1.3MM in working capital that he could use to optimize his new operation.  

Find a Farm Ownership Loan That’s Right for You 

Choosing the right farm ownership loan means finding a lender you trust. AgAmerica has worked to keep farmland in the hands of farmers for almost a decade. We understand the agricultural market and how it affects farm finances. Farmers work hard to feed us—we work hard to support them with custom solutions built for their unique needs.  

Contact us today to find the right farm ownership loan for you.