Jul 30, 2014
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Your Precious Land

RSS By: Mike Walsten, Pro Farmer

Mike Walsten has covered major business trends in agriculture for more than 40 years.

Negotiating Down Cash Rent for 2015

Jul 23, 2014

Mike Walsten

The subject of cash rents between landowner and tenants is always a touchy one, frequently with lots of emotion tied to the conversation as well. With this year's crop margins cut dramatically from recent years and prospects of potentially even tighter margins for 2015, conversations between high-rent-paying operators and landowners may become more frequent. Traditionally, rents are "sticky," slow to rise when margins widen and slow to decline with margins compress. Work by former Purdue Economist Dr. Brent Gloy, which we cover thoroughly in our July 24 issue of LandOwner, shows rents declined only nine times in the 38 years from 1976 to 2013. Of those nine declines, five were greater than 5% but only one exceeded 10%.

Dr. Gary Schnitkey at the University of Illinois highlights some of the keys to consider when looking ahead to cash rent negotiations for 2015. There's interesting analysis for both opertors and landowners in his report. Plus, he points out how a variable cash lease can help solve some of the issues of a fixed cash rent -- except for one. That's the landowner's desire to have a known revenue for planning purposes.

Click here to read the full report by Dr. Schnitkey.

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

Survey Confirms Bearish Attitude on Farmland Prices by Bankers

Jul 17, 2014

Mike Walsten

Central U.S. ag bankers are pessimistic on farmland values and farm profitability looking ahead into 2015. That's the read from the July Rural Mainstreet Index survey conducted by Dr. Ernie Goss, Creighton University, Omaha, Nebraska. The survey covers approximately 200 rural communities with an average population of 1,300 over a 10-state region from Colorado to Illinois. The results provide a reading on economic activity and outlook for rural, agricultural and energy-dependent areas of the Central U.S.

The Rural Mainstreet Index (RMI), which ranges between 0 and 100, with 50.0 representing growth neutral, fell to 51.8 from June's 53.6. "Agriculture commodity prices have plummeted for farmers in our region. The drop has slowed growth in the region according to our survey with prices below breakeven for a significant share of agriculture producers. I expect readings to move even lower as these lower prices spill over into the broader economy in the weeks and months ahead," says Goss.

The farmland and ranchland-price index for July slumped to 48.3 from June's weak 49.1. "Much weaker crop prices are definitely taking some of the air out of agriculture land prices. At this point in time, land prices appear to be moving gradually lower without significant volatility," states Goss.

The July farm-equipment sales index slumped to 33.4 from June's very weak 35.0. The index has been below growth neutral for 13 straight months. "Farmers have certainly become more cautious in their purchase of both additional land and equipment. This is having negative impacts on implement dealers across the region," says Goss.

According to a large share of bankers, crop prices, including corn, are close to or below the breakeven price for farmers. Approximately, one-third of bankers, 31.6%, reported current crop prices are below farmers' breakeven price. But as reported by Scott Tewksbury, president of Heartland State Bank in Edgeley, N.D., current spot prices for corn in his area are below $3.00 per bu. and well below the cost of production. As a result, more than four in 10 bankers, 40.3%, expect loan defaults to climb in the year ahead if crop prices remain at current levels.

However, previous strong farm economic conditions are expected to soften the impact of current low prices. According to Todd Douglas, CEO of the First National Bank in Pierre, S.D., "A majority of agriculture borrowers have strong enough balance sheets to cover lower commodity prices for a short-term period, however, not for a sustained period." According to Fritz Kuhlmeier, CEO of Citizens State Bank in Lena, Ill., "Cash margins and strong balance sheets will keep defaults modest for one year, but look out beyond that!"

Other bankers look for the improved financial sophistication of farmers to soften the blow of lower prices. For example, Jim Ashworth, president of Carlinville National Bank in Carlinville, Ill., notes, "In general, area farmers have become better at marketing their grain and hedging their price exposures than in years past." Jeff Bonnett, president of Havana National Bank in Havana, Ill., indicates he expects significant economic impacts from current low corn prices for rural areas if farmers do not experience a large decrease in input prices.

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

Farmers National Co. Sees Stable Farmland Market

Jun 19, 2014

Mike Walsten

Farmland values remain stable through the first half of 2014, says Farmers National Company, the large farm management/farm real estate firm headquartered in Omaha, Nebraska. Here is their press release highlighting their overall trends and trends in regions they serve. Their press release:

“The big story is that the land market is stable, despite projections that farm income and land values would drop,” says Randy Dickhut, AFM, Vice President of Real Estate Operations. “The anticipated large drop in farmland values hasn’t happened, as farm incomes were stronger than expected going into 2014. Original income projections of 20% below last year were not realized.”

In late 2013, forecasters were pessimistic for the year ahead, Farmers National says. However, Dickhut states economic trends and key market factors shifted in a way that paint a more positive picture for this year. Experts predicted a softening in land values as grain prices started to decline. In fact, commodity price drops boosted worldwide demand for U.S. exports, resulting in higher grain prices than initially thought. Higher grain prices and better farm incomes actually stabilized land prices going into 2014.

“Market factors aligned to create an optimal situation for our industry,” Dickhut says. “Due to this, we continue to see a strong land market. While there are no record-setting top values currently, land prices are not going down significantly.” While land values nationally are slightly down a few percent or stable, Dickhut states farmland values overall remain historically strong.

The northern plains area has experienced the most softening of land values due to weather conditions and lower commodity prices last year. Still, good quality farms sell well as demand continues from buyers. In contrast, the Delta region has experienced land value increases of 13% due to good crop production. Regionally, land prices remain fairly stable compared to the double-digit price increases seen in recent years. Prices per acre for high quality land range nationwide from $3,500 to as high as $12,500 per acre in parts of Indiana, Illinois, Iowa, and Nebraska. Values in the Upper Midwest remain strong overall with sales reaching $9,000 per acre in some locations.

As demand rises, prices for grass land continue to increase in places like Nebraska and Texas. Livestock producers are rebuilding depleted cattle herds, which puts pasture land at a premium. Reduced feed costs for livestock have helped boost income levels in this ag sector, allowing operators to acquire land.

“The 2014 outlook for farms remains positive,” said Dickhut. “Farm owners continue to search for high quality land to expand their operations. I think economic forecasts overrated the demise of the U.S. farmland market. Things didn’t fall apart, but instead held steady and strong. Profitability for operations helped to ultimately keep property values strong.”

REGIONAL LAND VALUE REPORTS

Kansas and Oklahoma: The market for high quality cropland remains steady throughout the High Plains with stronger values in the western part of the region. Overall area values are holding steady with some slight reductions from values 18 to 24 months ago, according to Brock Thurman, AFM, area vice president, Kiowa, Kansas. “Prices are still good for those high quality properties, with reductions being seen on lower quality land,” notes Thurman. “Values within the south central region are definitely tied to the specific location and quality of the farmland. Quality land is still selling at record prices, but we aren’t necessarily seeing measurable increases in value overall.”

Auction activity was busy during April and May in these states, still standing out as the method of choice for selling farm properties. “We definitely saw higher prices on land at auctions, versus private treaty sales,” observes Thurman. Some land sales are seeing higher prices if the property is tied to mineral rights. Active producing properties can bring higher prices and impact transactions based on the land selling with the mineral rights or not.

Positive crop production levels or profitability boosted by crop insurance receipts are also keeping values at a fairly strong point. “It’s important to keep farms profitable in this region to keep land values steady,” says Thurman. “Drought in the area has been challenging. If commodity prices stay high, farms will remain economically viable.”

Looking ahead for this region, Thurman predicts cropland will remain steady or see potential reductions in value based on market factors. Values will remain tied to land quality and location. Prices for irrigated high quality cropland in the area are variable, but range between $3,500 and $6,000 per acre, while the range for non-irrigated land is $2,000 to $4,000.

Iowa and Minnesota: Selective demand for high quality farmland continues as prices have leveled somewhat in the north central region, including Iowa, Missouri, Minnesota and South Dakota, according to Sam Kain, national sales manager, West Des Moines, Iowa. “Buyers are definitely choosy right now, but will pay for quality land,” says Kain. “We just aren’t seeing the frenzy and competition for properties we did last year. Whether or not we see a 10% or greater drop in values is yet to be seen because supply of available properties for sale is low. We still consider this a good land market based on historic trends.”

The land market in Iowa has been fairly strong with values holding, compared to some weakness in Minnesota due to cold and wet ground conditions impacting production. Economic factors contributing to current land values in this area include slow commodity trading. Property price levels to date have not been impacted by the ethanol mandate.

In Iowa, top quality land is selling at more than $12,000 per acre, while Minnesota values are reaching $9,000 per acre. Activity for land sales in North Dakota, eastern South Dakota and western Minnesota has tightened compared to 2013 with more transactions going to private listings, according to Terry Longtin, area vice president and area sales manager, Grand Forks, North Dakota. While there are still plenty of buyers, sales levels have weakened a bit overall, with levels coming in at 10% to15% below the high values of 2012. “I feel we are at a stabilizing place in the market,” observes Longtin. “For people wanting to sell, prices are still excellent, even if they are slightly down from a year ago. Our regional ag economy is a bit weaker than other regions due to lower commodity prices, high basis due to railroad transportation issues and reduced production in 2013. Overall though, sellers are still seeing historically high price levels.”

Longtin predicts commodity prices need to rise about 10% to continue to hold current land values. “If production in our region is low again this year, values could be impacted and buyer demand may lag. In contrast, if crop prices are good, farmland prices are likely to rebound by 10%.” An excessively cold winter in the region affected transportation which is impacting current commodity prices lower due to delays, notes Longtin. “The outlook for the new crop is positive, as compared to last year however, we are in a late planting year and are currently switching corn acres to soybeans or wheat, as of late May,” notes Longtin. “Right now warehouses are full with the last year’s crop, which needs to be moved to market to make way for upcoming production.” Average to good quality land in the area is selling in the $5,000 to $6,000 range per acre, while excellent land is in the $6,000 to $9,000 per acre range.

Top quality land in South Dakota is pulling up to $8,100 per acre, while North Dakota is coming in at $7,200 and Minnesota at $9,000. Colorado, South Dakota, Nebraska and Wyoming.

Since January 2014, the wide region covering Colorado, western South Dakota, Nebraska and Wyoming has seen a high level, of land sales activity. While land values have not increased significantly, they are still at a steady high level, states JD Maxson, area sales manager, North Platte, Nebraska. “Nebraska and South Dakota have enjoyed double digit increases in land value appreciation since 2006,” states Maxson. “Any slight declines in land prices going forward could be expected, but definitely not devastating, to producers and investors alike based on historical levels.”

Land auction activity across Nebraska and South Dakota has produced record grazing and pasture grass prices, according to Maxson. “We had two individual tracts of grass sell for $3,750 and $4,050 per acre, showing strong demand.” With livestock numbers still down from the 2013 Atlas Blizzard in South Dakota and northern Nebraska, high quality grassland/grazing pasture is in high demand among cattlemen and producers trying to rebuild their herds. In addition, farmers continue to accumulate and break grass acres for cropland, Maxson states. Some buyers are drawn to purchase based on location of land and proximity to farm operations. These scenarios have contributed to the positive upturn in grass acre prices.

Moving into the last half of 2014, record exports in 2013 will have global impact, according to Maxson. “The continued export of U.S. grains will have a tendency to support a stabilized commodity market and help boost ag profitability,” he says. Maxson reports low, average and medium quality ground has leveled off as commodity prices adjust to current conditions. Prices in these regions are ranging from $4,500 to $12,000 per acre for high quality tillable acres, with location, soils and topography dictating price. The range varies from west to east as well as by water availability and type of irrigation. There is a wide range of land values per acre depending on quality and if irrigated.

Illinois, Indiana, Ohio, Southern Michigan, Eastern Kentucky and Eastern Missouri: Quality farmland in the east central region continues to bring strong prices in most territories, supplies are limited- with demand steady, according to Roger Hayworth, area sales manager, Lafayette, Indiana. While quality land still leads demand, regionally there have been signs/indicators of a slight market correction as values have dropped on some property types 2% to 4% in general.

“This region had good sales activity into early March with quite a few land auctions and good numbers,” notes Hayworth. “However, sales volume has flattened in the last month reducing the number of transactions. Buyers overall are taking a conservative approach in the marketplace. Levels are down from 2013, with interest rates beginning to rise and commodity prices dropping, but nothing substantial.” Buyers will continue to watch the economic environment and its impact on values when deciding if and when to purchase land, according to Hayworth. Additionally, potential sellers may put land on the market if they feel values are starting to peak. “Rising interest rates could be a concern to the overall market values, as with crop production volumes later in the year” Hayworth says. “If the rise is gradual the ag market will adapt, but a sharp jump could have a deeper effect.”

Top prices in the region can be seen in Illinois at $12,500 per acre on average for high quality land. These levels are followed by Indiana showing values up to $10,000 per acre, and Ohio, which is at $8,000 per acre.

Arkansas, Mississippi, Missouri and Texas: Activity in the southern region overall remains brisk, fueled by low supply of quality land for sale and continued high demand. Year end figures for 2013 in Texas indicate an overall price increase of nearly 10% over 2012 prices. The Texas statewide, size adjusted average price was $2,160 per acre. Quality land for sale in all classes, is moving quickly states Mike Lansford, area vice president for the southern region, Fort Worth, Texas. Overall, Texas has seen an increase in land sale activity and a slight increase in land values in the past year, says Lansford.

The wide variety of geographic regions in the state has led to some variance. The prolonged drought across much of Texas and the Southwest continues to be the strongest deterrent for the land market. “We anticipate land values to increase 5% to 7% on average across the state in 2014,” states Lansford. “Quality is still king no matter what the land classification.” Buyers for productive farms are still available. Prices for top farm land are averaging $5,000 per acre in Arkansas, $3,600 per acre in Tennessee, $3,500 per acre in Texas and $5,000 per acre in Mississippi.

Washington: Washington land buyers continue to outnumber those who are willing to sell, creating a continued demand keeping prices strong for top quality properties, according to Flo Sayre, real estate broker in Pasco, Washington. “The market remains good for all land classes in this area,” says Sayre. Farm operators adding to their holdings and investors make up the buy side of the land market. Sales overall are still strong and auctions are driving prices. Irrigated land in the area is currently averaging $7,850 per acre. Non-irrigated cropland is currently seeing prices near $1,300 per acre average for all types of farms, according to Sayre. She noted that land in the eastern Palouse area is bringing prices as high as $3,500 per acre at auction. Prime farmlands in the Columbia Basin region are bringing prices at or above $10,000 per acre.

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

Another $20,000-plus Sale in Northwest Iowa

Jun 11, 2014

Mike Walsten

Despite a softening farmland market, northwest Iowa is once again the site of a $20,000-plus auction this week. The sale came Monday as 80 very prime unimproved acres of high-quality farmland passed under the gavel for $20,400 and acre. The property involved is located a few miles east of Boyden, a hotspot for eye-blinking farmland auction prices.

Soil quality is about as good as it gets. It carried a CSR of 78.9, 18% higher than the county average of 64.8. Here's the amazing part -- it carried a CSR2 rating of 99.5. Now that's prime.

What drives demand in that area? It features a community of well-established, multi-generation, deep financed livestock and grain operations. There is a strong desire by younger generations to return to the farm. In order to handle that expansion, livestock operations need more ground to produce feed and for manure disposal. Without the ground, expansion is over.

In addition, there is strong ethanol demand in the region, which turns the area into a grain deficit region at times. Basis levels, once the worse in the state, can be quite narrow at times.

For perspective, Monday's sale compares to the headline-making $21,900-per-acre auction marked Oct. 25 in 2012. That farm was also 80 acres in size with 79 tillable acres. It carried a CSR of 73.7 and a CSR2 of 84.1. It was located a little southwest of Boyden. Other farms in that area sold for $20,000 and more in 2011 and 2012.

So, does Monday's $20,000-plus sale mark a relaunch of the farmland price boom? Probably not. Rather, Monday's price is down 6.8% from the 2012 high. That seems to square with some of the weakness in seen in top-end prices around the state.

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

South Dakota Farmland Values Rise Marginally

May 28, 2014

Mike Walsten

The value of non-irrigated South Dakota cropland rose 6.1% in 2013, according to a survey conducted by ag economists at South Dakota State University. "This percentage increase was smaller than increases reported from each of the past three years," says Kim Dillivan, SDSU Extension Crops Business Management Field Specialist. Dillivan along with Dr. Larry Janssen and Bronc McMurty conducted the 24th annual survey.

The survey showed that the nonirrigated agricultural land average value was $2,470 per acre as of February 1, 2014, $142 from last year. "The 6.1% increase in values for 2014 is similar to the 5.2% increase reported in 2010," Dillivan says. That rise compares to the annual increases of 33.6% posted in 2013, 26.8% recorded in 2012 and 16.5% marked in 2011.

Regional average values by land use are simple average (mean) values of useable survey responses. In each region, per-acre average values of nonirrigated land are highest for cropland followed by per-acre values of hay land, tame pasture, and rangeland. For each land use, Dillivan explained that per-acre values are highest in the east-central and southeast regions and lowest in the southwest and northwest regions.

"These regional patterns in land values have largely remained consistent over time and are closely related to climate patterns, soil productivity difference, and crop/forage yield differences across the state," Dillivan states. That regional agricultural land values are weighted by the proportion of acres in each agricultural land use.

"Cropland is the major land use in the three eastern regions (southeast, east-central, and northeast) and its per-acre average value is more than twice the value of rangeland in these regions," Dillivan notes. "Thus cropland values largely determine the agricultural land average values in eastern regions of South Dakota." However, the two western regions of South Dakota with the lowest average land values are mostly rangeland and pasture.

The 2014 estimates for land values and cash rental rates are based on survey data supplied in February and March by agricultural lenders, Farm Service Agency officials, rural appraisers, assessors, Realtors, professional farm managers, and SDSU Extension field specialists. Land values and cash rental rates are reported only for privately owned land and should not be considered as estimated values for tribal, federal, or state owned lands.

Survey details


Since 2009, all South Dakota regions have experienced increases in agricultural land average values. The smallest percentage increases in agricultural land values over the 2009 to 2014 period were in the two western regions, with a 50% increase in the southwest and 67% increase in the northwest region. All other regions showed agricultural land average value increases exceeding 110% over the five-year period. The largest percentage increase in land values was 161% in the north-central region, while the second largest percentage increase of 135% occurred in the central region.

"It is interesting and important to note that the greatest percentage increases are occurring in the regions with considerable shifts to higher value agricultural land uses - which includes more corn and soybeans in the crop mix and some shift from pasture/forage uses to crop production," Dillivan observes.

From 2009 to 2014, the largest dollar increases in average values was $3,129 per acre in the east-central region and $3,030 per acre in the southeast region, followed by increases between $2,000 and $2,100 per acre in the northeast and north central region. The smallest increases in average values ($205 and $207 per-acre) occurred in the northwest and southwest regions.
 

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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