Buying at a Discount: Will Michigan farmland hit the market at bargain prices?

What is northern Michigan’s most valuable asset? According to Kevin Query, of local commercial real estate company Three West, the answer might just be farmland.

There are many reasons that Michigan’s arable land is so inherently valuable. Statistically, Michigan’s fruit-producing regions – including the Traverse City area – are able to produce crops at the same yield, consistency and value of the fresh-fruit-producing regions on the West Coast. What Michigan has that the several of the western states don’t have is water security.

California is the country’s most agriculturally diverse state, in terms of the crops it grows, but it also capped off a five-year drought in 2017. Each time a drought hits California, the state draws upon its aquifers, the 12 major of which range from 25-83 percent of full capacity, according to press time data published by the state’s department of water resources.

As a result, the eyes of the farming industry could possibly move from the first most agriculturally diverse state in the country to the second: Michigan.

For Query, spotting this impending shift of the farming industry illuminated a new opportunity. Query grew up in northern Michigan and worked his first job on a farm. It wasn’t until he became a student of Michigan State University’s crop and soil science program that he says he fully appreciated the agricultural capacities of his native region.

This year, Query joined Three West to head up a new niche that focuses on the sale of agricultural real estate. He’s arrived during what he portrays as the calm before a storm. With the age of the average farmer increasing, both nationally (69 years old) and locally (71), Query predicts that many northern Michigan farmers will soon be ready to cash in their chips.

“There is a pretty large volume of farmland that is going to be up for transition in the next couple of years,” Query said. “And with not a whole lot of succession planning in place, a lot of that is anticipated to hit the market.”

Age isn’t the only factor. Many Michigan farmers are also struggling to turn a profit, despite the prime location of their farmland. The problem is that that the vast majority of Michigan farmland is devoted to what are called “processing fruits,” such as the apples used for apple juice, or the tart cherries intended for cherry pie filling or cherry concentrate. For decades, these crops have been the driving force of Michigan’s farming economy. They’ve even given Traverse City its biggest claim to fame as the country’s top producer of tart cherries.

Query says that overproduction of tart cherries in Turkey and Poland has depressed prices considerably. In the mid-2000s, tart cherries were going for around 30 cents a pound. Today, the market price is 11 cents a pound. Tart cherry production costs, meanwhile, are hovering between 20 and 22 cents a pound, which means producers that rely on tart crops or other processing fruits are either operating at a loss or dealing with very narrow profit margins.

Some farmers have begun to dial down their processing fruit crops and transition to fresh fruit. Traverse City’s Wunsch Farms did just that about five years ago – a move that Query says has put them “way ahead of the neighborhood” when compared with other local fruit farming operations.

According to Isaiah Wunsch of Wunsch Farms, his family made the decision to emphasize fresh crops not because of some premonition about what would happen to the processing market, but out of necessity given their farm’s location.

“The fact that our farms are located on Old Mission made it a lot easier for us to make that decision,” Wunsch said. “We farm in an area where the real estate is quite a bit more expensive than the surrounding communities. So we knew that, to be viable in the long term, we needed to do something that was more profitable than processing fruit, even when the market for that was a little bit stronger than it is now.”

Wunsch Farms now pulls 80 percent of its revenue from fresh fruit crops, versus 20 percent from processing fruits. Those figures are a sharp contrast to 10 or 20 years ago, when Wunsch Farms – like most of the other fruit farming operations in the area – were invested largely in processing crops. Other farms could make a similar transition to boost revenues, but Query says that time isn’t on their side.

“There’s not much you can do at 71 years old,” Query said. “Even if you plant a new variety of crops that are more conducive to the fresh market trends, it still takes five years for that new cherry block or apple block to start producing. At that point, you’re 76 years old, and you’re there for retirement. Add the capital expenditure necessary to get that all up and running, and it’s kind of pushed a lot of these farmers into a corner. You either continue operating at a loss, or you get out. That’s kind of what we’re seeing right now, is the market trends forcing the issue.”

If older farmers are selling, who’s buying? Not younger farmers, it turns out. For one thing, there is a shortage of young farmers in general, hence the rising average ages in the profession. For another thing, Query says that most younger farmers simply don’t have the purchasing power to buy farmland or acquire the equipment necessary to do something with it.

Instead, Query predicts a surge in corporate buyouts of land from ready-to-retire farmers, or corporate investors for younger farmers wishing to expand their operations or change course into the fresh fruit market. In turn, these corporate groups will either own equity in existing farming businesses or hire young farmers to manage the land on a salary basis. Query hopes to play matchmaker between sellers and these corporate groups, or between farmers and potential investors.

No matter who ends up buying Michigan farmland, it’s possible they may find a good deal. Query expects that Michigan farmland selling in the coming years will go for less than what it is worth.

“Farmland like what we have around here – which is sandy soils that are moderated by the lake temperature – is so rare throughout Earth that it’s extremely undervalued as it is right now,” Query said.

“So, for now, you can get farmland in this area at a discount, as compared to what its actual productive value is.”