In general, land investments are often a good decision and commercial ranch properties are no different. Throughout the Intermountain West opportunities exist for both buyers and sellers, but as the old real estate mantra goes, location is everything. This is evident by availability in some areas and limited offerings in others.
Trends in values
According to the 2018 USDA Land Values report, released in August, combined agricultural land has seen a slowdown in price gains over the recent years. Beginning around 2014, the previously steady gains in farm real estate value—the value of all land and buildings on farms—flattened out to a far shallower gaining trend.
The gain from 2017 to 2018 on the national scale was only 1.9 percent. The Intermountain region saw even slower increases at 0.9 percent on average farm real estate value at $1,140 per acre, up only $10 from 2017. This was the lowest average farm real estate value of all the regions in the U.S.
When it comes to grazing land specifically, pasture prices in the Intermountain region were also the lowest as a region at $634 per acre. This was 1.4 percent higher than 2017’s $625 per acre, but only half the average gain seen around the nation for pasture value gains.
Realtor-broker insight
Realtors in the region provided some insight into what drives buyers and sellers in their respective states.
For Jerry Hicks, ranch broker with Fay Ranches based in Bozeman, MT, the slowdown seemed to happen this past year.
“There was some energy taken out of the market,” he told WLJ. “This year, I feel like it’s just taking a pause.”
Hicks said there’s a fair amount of inventory in his area in eastern Oregon, but that sales numbers just aren’t what they’ve been in the past years. However, he was unconcerned by this development, characterizing it as relatively normal.
“We may have a year or two when our sales transactions are down, but the owners of these ranches have the means to hang on to them if the market is soft. They buy them for a long-term hold, so typically what we see is a flattening of the market. But even in the Great Recession, I don’t think we saw declining sales, but we didn’t see very many sales. And then, as the economy improved, things took off.”
He added that he sees this stability in the value of ranches and working ranch land as something investors might want to consider.
Patrick Bates of Bates Land Consortium, Inc. serving Utah, Idaho, Wyoming, Montana and New Mexico, told WLJ, “We continue to see consolidation, and for commercial ranchers there is a shortage of real viable properties. We are seeing continued strength in favor of the sellers on those type of ranches.”
Bates said he has seen an increase in value that has continued despite the decline in cattle prices in late 2016 and 2017.
Who’s selling, who’s buying
Hicks told WLJ that most of the “value-priced ranches” he’s seeing going on the market come from an unfortunate, but common, source—death.
“We’re seeing a handful of those generational ranches coming on the market, he said. “Whether it’s the next generation taking over or because there’s not a succession plan, or not a good succession plan in place.”
As something of a tangent to poor or nonexistent succession planning, Hicks talked about the ironic challenge that land values pose to the sustainability of the industry.
“The value of the ranch way exceeds the earning capacity. With no cash, the one or however many heirs to that ranch can’t buy out the rest of their family and stay on the ranch to make it work,” he said.
“In no way can someone pay out 50 percent of the value of the ranch to one sibling, much less 75 percent of the ranch if there are four siblings and make a living on the ranch. They’re just not able to do it. That’s where the breakdown happens.”
Bates also noted that many of the properties offered for sale are due to death, divorce or no family members to take over the ranching operation. On the other hand, buyers of already large operations are often prompted to expand in order to accommodate family members who want to stay or return to the ranch.
“That is one of the motivations for the mid-sized operators, those who are running 1,000 to 3,000 cows. They are expanding to accommodate children who are staying,” Bates explained. “Then of course there are larger operators who continue to look for operations that are running 4-, 5- or 6,000 animal units and there’s not much of that out there.”
Additional insight from Bates pointed to changes in capital gains taxes that may accelerate some selling decisions.
Challenges and opportunities
Though the “land rich, cash poor” scenario is a perennial challenge in the ranching industry, other issues like the drought, the ongoing trade war, and the upcoming midterm elections were highlighted as likely challenges going forward.
Rather than a potential challenge, Hicks saw the midterms in an unusual light; either way they go, it’s an awesome time to buy a ranch.
“Whether you believe the economy is going to go through the roof, or you believe the economy is going to go in the toilet, there are supporting reasons for buying ranches in either situation,” he explained.
“Obviously, if the economy goes through the roof, we’re going to see rising values in these ranches.” On the other hand, if the economy goes south, land is a well-known safe place to “park” money.
“If [buyers] are in the position where they don’t have to service a mortgage, or they’ve got some money they want to pull out of something and put it in a safe place and they know they would have to be there for five years, I don’t think there’s been a better time to buy a ranch for a lot of reasons, whether we have a great economy or an economy moving forward, if they can hold it for five years, they’re going to be looking pretty smart in 2023.”
Bates said he doesn’t believe the upcoming election will have much impact on commercial ranch properties. “The people who are interested in livestock and agriculture are grounded people. They are sensible people. They are the salt of the earth. They don’t pay a hell of a lot of attention to the political posturing.”
Bates reiterated that availability of viable commercial ranches in the states he services can be a challenge for potential buyers, but he also he noted, “The lack of availability serves those who are interested in selling quite well.” — Kerry Halladay and Rae Price, WLJ editors
