According to the USDA’s Land Values 2023 Summary, farm real estate value – a measurement of value for all land and buildings on farms – averaged $4,080 per acre in 2023. This was a 7.4% (about $280) increase from 2022. In states like California, Iowa, Illinois and Indiana, farm real estate value is more than $8,400 per acre. These rising land costs have caused many producers to switch industries for more reliable pay and prohibited many beginning farmers and ranchers from starting their own operations.
The USDA defines a beginning farmer or rancher as an individual who has operated a farm or ranch for 10 years or less either as a sole operator or with others who have also operated a farm or ranch for 10 years or less. Realistically, these individuals are typically younger and own smaller farms or ranches than established producers. The average age of beginner farmers and ranchers was 47.1, whereas the average age of an established farmer or rancher was around 58. The most recent Census of Agriculture provides that beginning farmers and ranchers make up about 1 million of the 3.4 million U.S. farming operations.
The challenges facing beginner farmers and ranchers include the ability to find land as well as finding capital for ranch and farm needs (equipment, livestock, feed, seeds, etc.). The increase in land prices can mean that even if beginner farmers and ranchers find a suitable piece of land, they are still unable to begin operations due to the additional expenses to get started. One source valued the startup costs for purchasing land, building other necessary structures, purchasing livestock, purchasing feed and supplements, purchasing equipment, hiring employees, obtaining proper permitting and licensure, implementing marketing and advertising strategies, and providing emergency veterinary care anywhere from $1.245 million to $4.2 million.
Two of the biggest hurdles in entering farming or ranching are finding land as well as determining whether to lease, rent or purchase the land. When searching for land, one of the biggest considerations is to identify the budget of the operation as well as its needs. Many farm or ranch listings are available on a state-by-state basis using a simple Google search or search of local listings by real estate agents. Despite this, to find leads regarding land for lease, the local USDA Service Center can typically provide information about land for sale or lease through the Transition Incentive Program.
The flexibility of leasing agricultural land is often desirable to beginner farmers and ranchers due to the ability to adjust the size of the operation or to give up leases upon expiration if the land doesn’t fit the need of the producer. However, if a beginning farmer or rancher buys the land, they can build equity and use it as collateral for expansion. The USDA’s Farm Service Agency (FSA) keeps an inventory of farmland property for purchase and allows beginning farmers to have priority to purchase the land at an appraised value.
The FSA makes and guarantees loans for beginning farmers and ranchers. The maximum loan amounts include direct farm ownership for $600,000, direct operating loan for $400,000, microloans for $50,000, guaranteed farm ownership or operating loan of $2.236 million and EZ Guarantee for $100,000 or $50,000 if the loan comes from a microlender.
The FSA also provides a down payment program where the beginning rancher or farmer puts a cash down payment down for at least 5% of the purchase price and the loan amount is limited to 45% of the lease of the farm purchase price, the appraised value of the farm (or $667,000), a 20-year loan term, an interest rate 4% below the direct farm ownership rate but not lower than 1.5%. The remainder can be obtained from a commercial lender or private party. Another option for beginning farmers is to choose a joint financing agreement in which the FSA lends up to 50% of the amount financed and a separate lender provides 50% or more. The interest rate is usually 2% less than direct farm ownership rate but isn’t lower than 2.5%.
To access and apply for direct loans, beginning farmers and ranchers can locate and contact their local FSA office, and if it’s for a guaranteed loan, the applicant must apply to a commercial lender from the Guaranteed Loan Program. More information regarding farm loans is available at the FSA website or at the Farmers.gov website.
