Oregon farm real estate values outpacing national trends

The latest data made available by the USDA Census of Agriculture show that the value of Oregon farmland has increased by 23% over a five-year period, compared with just 7% nationally. Dan Bigelow is an assistant professor in the department of Applied Economics at Oregon State University. He’s been analyzing this census data to create a fuller picture of Oregon farmland, including who agricultural producers are, the size and sales of the farms and their estimated land values. He joins us to share his interpretation of what these numbers mean for the overall availability of farmland for agricultural use in the future.

Note: The following transcript was created by a computer and edited by a volunteer.

Dave Miller:  This is Think Out Loud on OPB. I’m Dave Miller. The value of Oregon farmland increased by 23% over a recent five year period, compared with just 7% nationwide. That is according to data from the USDA’s Census of Agriculture. Dan Bigelow is an assistant professor in the Department of Applied Economics at Oregon State University. He has been analyzing this census data to create a fuller picture of Oregon farmland including the size and sales on farms, their estimated land values, and who is growing. Bigelow joins us now to talk about what he has found. It’s great to have you on the show.

Dan Bigelow:  Hey, thanks, Dave. Long time, first time. Thanks for having me.

Miller:  That’s great to hear. Why do you think that the value of Oregon’s farmland in this latest agricultural census went up much faster ‒ something like three times faster ‒ than the national average?

Bigelow:  Yeah, that’s a good question. There are certainly a whole bunch of factors going on. Over the last couple decades, farmland values throughout the US have been rising pretty rapidly, setting new historic highs, it seems like, almost every year. A lot of that is due to the low interest rate environment that we’ve been in since the great recession. But there are other factors that are specific to Oregon that sets it apart a little bit.

So for one, land is inherently scarce, so the market for farmland is what economists refer to as a thin market. So most farmland that is actually exchanged and transfers ownership is done so within families. Relatively little is put on the market for sale. And basic economic intuition suggests that if the demand for land, as an input or an investment opportunity, outpaces supply, that’s going to lead to increasing values.

There’s also, on that note, some evidence that there’s increased interest in owning farmland as an investment opportunity. We don’t have hard numbers to back that up really. But if you look at industry reports and things like that, they seem to suggest that investor interest in Oregon farmland tends to be quite high.

Miller:  When you say investor interest in Oregon farmland, is that investors saying, ‘hey, I think this is developable land in the future’ or do they have tenant farmers who are still working the land? I mean, what does it mean to have agricultural land as an investment?

Bigelow:  It could be either of those two things. As just an investment regardless of the land’s development potential, farmland is increasingly being seen as an attractive opportunity. It tends to hold its value and appreciate over a relatively long period. It tends to be counter cyclical in the sense that it doesn’t correlate strongly with other investment opportunities like securities and the stock market. So it can act as a way for an investor to diversify their portfolio.

Miller:  And so that’s why publicly traded real estate investment trusts might be interested in buying up agricultural land these days?

Bigelow:  That’s exactly right. And one of the bigger publicly traded real estate investment trusts ‒ Gladstone ‒ they own land in the Willamette Valley. It’s not a whole lot according to the report I saw, but they do own some land in the Willamette Valley.

Miller:  What other factors might explain the huge discrepancy in the estimated difference in the value of Oregon agricultural land’s rise, compared to the national average, because it’s quite striking?

Bigelow:  It is quite striking, and there are two other reasons I’ll give. One is sort of production related, so irrigation and water scarcity. So if you dig into some of the other USDA reports on farmland values, there you can see that irrigated land is really driving the increase in the state. And so as market participants increasingly recognize the climate-induced water scarcity that we’ll likely have in the future, land with irrigation rights is going to naturally just be worth relatively more and will rise in value relative to non-irrigated land.

Miller:  And, in other words, the fear, or reality, of water scarcity is priced into the market right now?

Bigelow:  Absolutely, yeah. And the last thing that I’ll mention ‒ and this is maybe a little bit in the weeds ‒ but I think it’s worth thinking about what the values are that we get from the census, what they actually mean. So I think there are survey related factors, just related to the census itself that may be partly driving the values up in Oregon, relative to the rest of the U.S.

Miller:  I’m glad you brought that up because that’s actually my next question. Am I right that this census relies on farmers themselves to estimate the value of their land and buildings? I mean as if we said what housing values are just relying on an owner to say, ‘my house is worth X amount’ as opposed to saying that this is what the market actually said ‒ this is what the sale price was last year?

Bigelow:  That’s right. Yeah. So the census, and all other USDA surveys that report land values, are based on asking respondents to estimate the market value of their land. So it’s not the same as something like an observed sales transaction price. And if you look at those, they tend to actually be higher than the survey values that you see statewide.

Miller:  Really, the actual sales price? That’s really surprising to me. I thought, in general, everyone likes to inflate what they have. You said in general, the census numbers that come from the farm owners ‒ just their estimate of what their land is worth ‒ is lower than what the market often says it’s worth?

Bigelow:  Yeah, I mean, we’re talking in terms of statewide averages here. I think a lot of that could just be explained by the fact that the land that’s actually sold is maybe higher quality. So the price is just going to be higher, relative to something like the census where you’re talking about all land in the state.

Going back to what I said at first, the market for farmland is very thin. And so these surveys sort of fill an important gap in providing some information about the value of land where transactions are not often readily available for analysts and practitioners to look at.

Miller: There were some headlines, including on OPB just a few months ago, about another data point that came from this same agricultural census. It was that Oregon lost over 600,000 acres of farmland ‒ 4% of the total ‒ between 2017 and 2022. But you have cautioned that, in your mind, the reality is more complicated than that. What do you mean?

Bigelow:  I mean, as you mentioned, this 667,000 acres of farmland that were “lost” in the latest census, is really just a huge area. It’s over 1,000 square miles. If you put it in relative terms, it’s seven Portlands or 72 Corvallises. I’m not sure if that helps at all.

Miller:  In just five years?

Bigelow:  I just five years. Exactly.

Miller:  So, a really striking number. Why should we look at this number with caution?

Bigelow: So in my mind, if you compare the numbers from the latest census to other data sources that report information on land use change… The census is designed to provide this comprehensive picture of all sorts of things related to farms, not just land use. But if you look at other data sources that are more dedicated to looking at land use and focus on that in particular, the changes are a lot more minimal.

And so I think a lot of this big loss of farmland reported in the latest census could be chalked up to more of a change in what’s counted as being farmland in the census, as opposed to that land going away. I mean, it didn’t go away. We didn’t build houses, certainly, on 600,000 acres of land during that five year period.

Miller:  So, if it’s not a question of the land going from rows of crops to rows of subdivisions ‒ rows of homes ‒ what is the land use change that you think, in large numbers, might account for the census numbers? What’s changing, do you think, on this land?

Bigelow:  You kind of have to go back to square one and think about what does the census defines as being a farm? The census defines a farm as any place from which $1,000 or more of agricultural products were produced or sold, or normally would have been sold, during the census year. So it’s a pretty permissive definition. It hasn’t changed since 1974.

Miller:  Just $1,000 in the course of a year?

Bigelow:  Yes. And you don’t actually have to have realized $1,000 in sales. It’s just if you normally would have sold that amount, even if you didn’t, in the most recent year, you still count it as being a farm.

Miller:  What percentage of the land that is categorized as Oregon farmland, that falls into that category, is at that low threshold?

Bigelow:  Those small farms account for the vast majority of farms that are counted in the census. [They are] a relatively small amount of the acreage, thought. So that’s the difference there. If you look, though, at some of these other land use related data sources that I mentioned ‒ one is called the National Resources Inventory ‒ and if you look at the previous census period… So 2012 to 2017, Oregon lost 300,000 acres of farmland according to the census. According to this other source, it was more something like 10 to 20,000 acres of land actually leaving agriculture or ag-adjacent uses.

So again, like the census, it’s a survey. The response rate this year, the most recent census year, was as low as it’s ever been in history. So it was down to 61%. And then, in the background, the statisticians at the USDA are doing all sorts of work to impute the missing values that are not coming through in the census responses. So that could have played a role. There were big droughts as well, in 2021 and 2022, that could have affected who responded to the survey and how they responded in terms of what they considered to be part of their farm.

So just to give you an example, Jefferson and Wasco counties were in major drought during this time period, and both lost a lot of land according to the census. It tended to be marginal land, things like wooded areas on farms. As a result, both of those counties saw enormous gains in the reported value of the farmland, right? So it’s a little bit more tricky than saying the value of farmland in Jefferson County went up by 80%, when in reality, it’s probably that a lot of the lower value land just wasn’t actually counted in this most recent census year.

Miller:  Dan Bigelow, thanks for helping us understand this. I appreciate it.

Bigelow:  Yeah, thanks Dave.

Miller:  Dan Bigelow is an assistant professor in the Department of Applied Economics at Oregon State University.

Contact “Think Out Loud®”

If you’d like to comment on any of the topics in this show or suggest a topic of your own, please get in touch with us on Facebook, send an email to thinkoutloud@opb.org, or you can leave a voicemail for us at 503-293-1983. The call-in phone number during the noon hour is 888-665-5865.