Apr 17, 2014
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February 2014 Archive for Your Precious Land

RSS By: Mike Walsten, Pro Farmer

Mike Walsten has covered major business trends in agriculture for more than 35 years.

Farmers National Co. Details Cash Rent Trends

Feb 20, 2014

Mike Walsten

Cash rents are seen as mostly steady in 2014, according to Farmers National Company, the large farm management and real estate firm located in Omaha, Nebraska. “Demand for high quality property is keeping both land values and rental rates strong,” says David Englund, AFM, executive vice president of farm and ranch management. “Overall, lease rates are higher on quality land if the land was rented below market in 2013, but rates across the board are mostly level. Fertilizer costs are expected to drop further in 2014, which will help farmers remain profitable.”


The desire of farm owners to expand existing operations is leading to highly aggressive sales activity and keeping the demand for farmland strong. In addition, there has been a trend of young people coming back to family farm operations prompting additional demand for land. “As a result of these factors, lease rates for land should remain steady and strong throughout the year,” says Englund.

Here are cash rent trends from Farmers National Company representatives on a regional basis:

Nebraska

Cash Rents in Nebraska for 2014 are steady compared to last year in most areas, according to Blake Florell, AFM, area vice president, Kearney, Nebraska. High quality irrigated farm ground continues to be in very strong demand, affecting lease rates. Several factors are impacting demand for this type of farmland, including excellent irrigated yields over the last several years. According to Florell yields were also strong for dry land in many areas of Eastern Nebraska in 2013.

“Competition by producers to expand farming operations, underlying land asset values and long term future optimism will keep lease rates strong into next season,” said Florell. Current cash rent lease value ranges vary in Nebraska, from $215 - $425 for irrigated land and $50 - $400 for dry land, depending on location. Cash rent values traditionally strengthen from western areas to eastern areas in Nebraska, for both dry land and irrigated ground.

Kansas

Cash rent rate levels for 2014 in Kansas remain steady in comparison with those of the previous year, according to Brock Thurman, AFM, area vice president, Kiowa, Kansas. He reports lease activity here is in line with trends across the grain belt. “Moving into 2014, projections point to steady rents on cropland, and possible slight increases in pasture rents,” says Thurman. Current cash rent lease values in Kansas range from $50 - $200 for nonirrigated land to $125 - $300 for irrigated acres.

North Dakota, South Dakota and Minnesota

Rates for cash rents have not seen substantial change during the past 12 to 15 months in this area, according to Terry Longtin, area vice president and area sales manager, Grand Forks, North Dakota. Longtin reports rates for 2014 leases are coming in with renewal rates at the same level as 2013, and will likely remain consistent for next year.“If commodity prices don’t go up over the upcoming year, I anticipate a drop in rents for this section of the country for the 2015 season,” says Longtin. Despite a slow start, interest in Cash Rent-Plus leases is growing, providing flexibility. Cash rent lease values in North Dakota range from $50 - $275 per acre, with numbers in South Dakota at $140 - $350 per acre. Cash rents range from $50 - $350 per acre in Minnesota.

Iowa

Lease activity is high in 2014 with demand very strong for all farmland classes, according to Larry Hill, AFM, area vice president, Eagle Grove, Iowa. “As with farmland sales values, the best farmland continues to demand the highest lease rates,” observes Hill. “If the farm owner has kept up with increased cash rent values over the last few years then we are calling the market in this area steady.” In some cases, farms that were not professionally managed, are showing existing lease rates as much as $100 an acre below the market. There is demand for good, improved pasture land. The area that appears to be the weakest in Iowa is poorly-drained farmland, as well as small irregular shaped fields with a high portion of non-tillable acres.

Projections into 2014 are for steady rents in this state. “A key indicator for us is that farmland values are continuing to be very strong and when you look at return on investment, we think rental rates will be stable,” said Hill. Cash rents on cropland in Iowa range from $100 - $500 per acre based on quality and location.

Illinois

Use of cash rent leases continues to increase according to Dennis Hoyt, AFM, area vice president, Quincy, Illinois. Farmers continue to grow their operations, with the result being the growing high demand for leased land. Overall, yields in 2013 were better than early season expectations resulting in positive year-end income levels. “Cash rent rates for 2014 will be steady in most cases with a few top-end rents falling back slightly, says Hoyt. “A large number of cash rent leases have moved to some form of flex type terms, and those leases are remaining steady from 2013 to 2014.” Cash rent lease values in Illinois range from $200 - $500 per acre.

Indiana and Ohio

Cash rent rates in Indiana and Ohio for 2014 are steady to higher, reports Steve Wright, area vice president, Lafayette, Indiana. Even with recent drops in commodity prices, demand for land to cash rent is still very high. “Operators are looking to amortize their machinery cost over more acres,” states Wright. In this area, Cash Rent-Plus (flex rents) have become the lease of choice by both land owners and operators. “It provides base rent with upside potential for the land owner, but only if the operator has a good year,” says Wright. Rates in Indiana and Ohio are a reflection of the Corn Belt as a whole, which saw a larger than expected crop in 2013. Producers are facing lower commodity prices, countered by lower fertilizer costs.

Moving into 2014, Wright projects rents to be steady to slightly higher with more leases moving to Cash Rent -Plus. Current cash rent lease value ranges vary in Indiana from $200 - $400 based on location, and in Ohio from $100 - $325 based on location.

Kentucky

Cash rents in Kentucky are looking very similar in 2014 to what was seen in 2013, according to Parke Carter, AFM, area vice president, Lexington, Ky. Current demand will maintain cash rent levels through 2014, despite reduced commodity prices says Carter. Variable leases are making a showing in Kentucky. In addition, crop share rental arrangements where landlords and operators split expenses are prevalent. Other trends include strong appreciation levels on long-term leases that have just been re-negotiated.

“Most rental values in 2014 should remain equal to 2013 levels,” states Carter. “However, we are seeing cases of re-negotiated long-term leases that were undervalued increasing up to 50% – 60% in some cases.” Cash rents on good cropland range from $100 - $300 per acre based on location.

Texas and Mid-South

Texas was not as greatly affected by the national recession over the past several years given its broad geographic area and diversified economic base, according to Mike Lansford, area vice president for the southern region, Fort Worth, Texas. “The drought over the past three years has greatly affected agricultural land markets, rental rates, and cattle prices,” says Lansford. “While some recovery has occurred during 2013, rainfall is the greatest, single, natural component that affects agriculture in this region, including rental rates.” As land values in this area continue to rise conservatively, so will cash rent rates, according to Lansford.

In east Texas, an area with low crop production, cultivated land is almost entirely cash leased. Dry land crop production dominates central Texas where crop share arrangements are the leasing trend. Current rates for both these areas are $25 - $35 per acre. Lease rates in southeast Texas have not changed vastly in the past 20 years, with cash lease rates currently ranging from $25 - $50 an acre for cropland. There has been a trend beginning to move away from cash leases to net share leases with a per acre minimum, notes Lansford. In the panhandle of Texas cash rent lease values range by land quality with irrigated crop land demanding $60 - $200 per acre. Cash rent lease values throughout the mid-south range from $80 - $190 per acre.

 

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

Central, Southern Plains Farmland Markets Show Signs of Cooling

Feb 14, 2014

Mike Walsten

Farmland values in the Central and Southern Plains show signs of cooling, reports the Federal Reserve Bank of Kansas City. That's based on the bank’s most recent survey of ag bankers in Kansas, western Missouri, Nebraska, Oklahoma and the Mountain States of Colorado, Wyoming and northern New Mexico.


"After several years of large increases, agricultural bankers indicated cropland value gains slowed dramatically in the fourth quarter and ranchland values declined slightly," state bank economists Nathan Kauffman and Maria Akers.


"From 2010 to 2012, non-irrigated cropland values jumped more then 6% from the third quarter to the fourth quarter of each year while irrigated cropland values surged an average of almost 7%. In contrast, cropland values rose only about 1% in the fourth quarter of 2013 despite fewer farms being for sale. Ranchland values actually dipped below third-quarter levels. Although farmland values remained higher than in 2012, the year-over-year gain was the lowest in more than three years," they state.


On an annual basis, the value of non-irrigated district cropland rose 9.2% compared to a year earlier while the value of irrigated district cropland rose 7.4%. The value of district ranchland rose 9.7% on an annual basis. Western Missouri led gains with an annual increase of 15.9% while the state also reported a rise of 16% in the value of ranchland. Kansas lists annual gains of 10.7% in non-irrigated cropland values, 7.0% in irrigated cropland and 6.2% in ranchland values. Nebraska reports year-over-year increases of 5.2% in non-irrigated cropland values, 7.1% in irrigated and 10% in ranchland values. Oklahoma lists a rise of 9.5% in non-irrigated cropland values, 8.4% in irrigated cropland and 7.8% in ranchland values. The Mountain States report a gain of 8.3% in non-irrigated cropland values, 1.0% in irrigated and 7.0% in ranchland values.


"A growing number of district bankers felt that farmland values had topped out and could retreat from current highs," report the authors. "At the end of 2012, only 1% of survey respondents expected a decline in cropland values compared to 16% at the end of 2013."

 

If interested in seeing a copy of LandOwner, just drop me an email   at landowner@profarmer.com   or call 800-772-0023.

Central Corn Belt Farmland Values Rise 5%, Iowa Farmland Slips 2%

Feb 13, 2014

Mike Walsten

The value of Central Corn Belt farmland rose 5% in 2013, according to a survey of ag bankers conducted by the Federal Reserve Bank of Chicago. While an increase, the "growth in farmland values appeared to be slowing," states David Oppedahl, senior business economist with the bank who conducted the survey.


  The increase is the smallest annual gain since 2009 and the second-lowest gain of the past decade. Strong increases were reported in Illinois and Indiana, which show gains of 10% and 14%, respectively. Michigan reports a 6% increase and Wisconsin marks a 2% rise. Iowa, however, reports a decline of 2% in the value of farmland.


The value of "good" agricultural farmland rose 3% during the fourth quarter compared to the previous quarter. Indiana led the gains on a quarterly basis with a 6% rise. Illinois followed with a 3% boost. Iowa and Wisconsin both noted a 1% decline for the fourth quarter compared to the third quarter.


Looking ahead, the bank says a majority of ag bankers expect farmland values to be stable in the first quarter of 2014, but the remainder of those surveyed said they looked for farmland values to decrease.

If interested in seeing a copy of LandOwner, just drop me an email   at landowner@profarmer.com   or call 800-772-0023.

ASFMRA: Farmland Market in Transition

Feb 12, 2014

 

 

Mike Walsten

Here is an interesting summary of the nation's farmland market, provided by the American Society of Farm Managers and Rural Appraisers. Our thanks to Kirk Wieh, AFM, ALC, Hertz Farm Management, Inc., Mt. Vernon, Iowa, for providing this summary to LandOwner.

The farmland market begins 2014 in a much different situation than a year ago. The start of 2013 saw the market catching its breath following a dynamic surge in the wake of record corn and soybean prices in the Midwest and net farm incomes throughout the United States. This year, farmland owners and operators are adjusting to lower commodity prices. The change in price outlook has brought a shift in market dynamics as well. The result is a farmland market that is in transition. The following are observations from farmland professionals in the areas of valuation, sales and acquisitions.

Merrill E. Swanson, ARA, Valbridge Property Advisors, San Antonio, Texas believes the Texas rural land markets are led by a strong Texas economy. Texas is a business friendly state with high consumer confidence. The Texas economy recovered probably sooner after the Great Recession than most states with a strong energy sector led by the discovery of the Eagle Ford Shale in South Texas.

The booming energy industry in Texas is anticipated to continue. The various shale plays including Eagle Ford and others are injecting billions of dollars into the Texas economy. Most Texas cities are thriving because of the energy business. Many energy related investors are buyers of farms and ranches. Rural land prices in most areas of Texas are on the increase. Conversely, pricing of rural land heavily impacted by oil and gas production in the shale or other oil and gas plays may not be measurably increasing.

Steve Runyan, ARA, Runyan Appraisal Service, Bakersfield, California indicates that land values have generally increased at least 50% in the last five years in areas that do not have urban expansion pressure. There have been similar increases in value for most permanent crops. The exception to this is the intermountain valleys where land values have been stable for several years. Land values in areas affected by urban expansion pressure have fluctuated because of the housing market, but are generally increasing in the last two years.

Land values in the Imperial Valley have steadily increased over the last five years with an increase in the range of 40%. Land values in the Coachella Valley declined in the range of 70% between 2007 and 2010 as a result of the decline in the California housing market. The market appeared to stabilize from 2010 through 2013. There were nearly 2,000 acres put on the market in 2013 and prices softened somewhat. By the end of 2013 prices had started to increase again.

The overall situation in California is limited property for sale and an abundance of buyers. The majority of the San Joaquin Valley is expecting to receive zero water allocation from irrigation districts in 2014. This should have a detrimental effect on land values, but sales most likely will just cease for a period of time.

Kirk Manker, Farm Credit Services of America, Omaha, Nebraska leads the FCS appraisal team consisting of nearly 70 full time appraisers across a four state area. Their recent update of Benchmark Land Values indicates demand for Midwest farmland remains strong while prices show signs of leveling off. Land prices and demand continue to be strong across the four-state area of Iowa, Nebraska, South Dakota, and Wyoming, but the latest data aggregated by Farm Credit Services of America (FCSAmerica) suggest the market for crop production farmland could be leveling off or in some cases softening.

The semi-annual update of the Benchmark Land Values in which the lender tracts the values of 65 farms based on an analysis of more than 3,500 agricultural real estate sales transactions in all four states in 2013 indicate the following trends as of Jan. 1, 2014:

Iowa: down 2.8% for the past six months and up 3.4% the past year and 98.3% the past five years.

Nebraska: up 0.7% the past six months; up 8.0% the past year and up 143.2% the past five years.

South Dakota: up 7.2% the past six months; up 17.6% the past year and up 109.3% the past five years.

Wyoming: up 3.4% the past six months; up 6.9% the past year and down -3.8% the past five years.

After years of a steady rise led by lower than average U.S. yields, strong domestic and international demand for commodities, low interest rates and solid profit margins, the rate of price increase is leveling off for farmland in some areas.

Land prices and demand for farmland continue to be strong in the four-state area, but buyer sentiment could be adjusting with decreased commodity prices that will reduce record profit margins experienced the past few years.

Allan Worrell, AFM, ALC, Worrell-Leka Land Services, Jacksonville, Illinois believes the land market in Western Illinois has become erratic. During the first half of 2013 the market was universally strong with excellent soils selling for $15,000 to $16,000 per acre. Once the price of corn/soybeans began to deteriorate we saw some softening, which has carried into early 2014.

The excellent soils are still in strong demand with a limited supply available. The market appears to have retreated on the good and fair soils. In some cases we see sales that appear to be off 10% or more.

There is little doubt that the driving force to unstable prices has been the decline in commodity prices. This uncertainty has resulted in buyers becoming more conservative in their approach to buying land.

 

If interested in seeing a copy of LandOwner, just drop me an email at landowner@profarmer.com or call 800-772-0023.

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