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March 2012 Archive for Your Precious Land

RSS By: Mike Walsten, Pro Farmer

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

Survey: Illinois Farmland Increases 20% to 21% in 2011

Mar 22, 2012

Mike Walsten

The value of Illinois farmland rose 20% to 21% in 2011, according to an annual survey conducted by the Illinois Society of Professional Farm Managers and Rural Appraisers. Top prices reported by the survey ranged from $10,000 an acre to $13,000 an acre across the state.

The top price of $13,000 per acre was for a November 2011 sale of 37.7 acres in Christian County. The property was listed as having Excellent quality land. Sales in the $10,000 per acre range were common across a number of regions in the state. "A good part of this tremendous move in Illinois crop land values is based on increasing farm income returns, and expectations of strong income into the future," says Don McCabe, AFM, Soy Capital Ag Services, and general chairman of the Land Values Survey and Conference. 5

Respondents indicated that farmland values increased between 20% and 21% across land classes during 2011, says Gary Schnitkey, Ph.D., Department of Agriculture and Consumer Economics, University of Illinois. "Prices of excellent productivity farmland was estimated at $8,690 per acre price on January 1 and $10,460 per acre price on December 31st, an increase
of 20% percent during the year. Good quality farmland price was estimated at $7,490 at the beginning of the year and $8,980 at the end of the year, an increase of 20%. Average farmland's price was $6,080 per acre at the beginning of 2010 and $7,330 at the end of year, an increase of 21%. Fair productivity farmland's price was $4,880 at the beginning of the year
and $5,900 at the end of the year, indicating a price increase of 21%."

Rents Rising As Well

"Given the variability of land quality and regions, and the aggregation of data over many sale and rent observations, the traditional relationship of the market to price land at levels where income results in a "cap rate" of 3% to 5% continues to hold. Rents drive the rate of return in relation to land values; land prices do not trigger or cause rental returns," McCabe explains.

According to survey results, traditional fixed cash rent leases increased for 2012 to 32% of all farm operating arrangements. All other types, totaling 68%, include a variety of crop share and variable cash rent leases, and custom farming contracts. This 68% majority of farm operating agreements include features where the landowner shares, in some way, in the farm's crop production and/or price risk, and is rewarded when yields and prices are good.

Cash rents increased a great deal between 2011 and 2012, Schnitkey explains. "For excellent quality farmland, rents increased $60 per acre from $319 per acre in 2011 to $379 per acre in 2012. Increases were $60 per acre for good quality farmland, $50 per acre for average quality farmland, and $35 per acre for fair quality farmland.

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

Farmland Price Surge to Trigger Change in Farmland Economics?

Mar 20, 2012

Mike Walsten

The strong upswing in the value of farmland has driven returns to landowners downward from historical levels despite increases in cash rents. For Murray Wise, Murray Wise Associates, LLC, Champaign, Ill., this downshift is a major shift in farmland economics -- one that landowners are just beginning to understand.

"Farmers and farmland investors are facing a new reality of lower returns on their farmland, and we're beginning to see this both anecdotally and statistically," says Murray Wise, whose firm sells farmland by auction and private treaty. "We've been enjoying returns of 3.5 to 4.5%, but I believe that's changing dramatically. A major factor is that returns on competing investments are so low that farmland will remain an excellent investment even at rates of 3% or less, which we're already starting to see."


That doesn't mean that cash rents are falling. In fact, recent statistics prepared by Iowa State extension economist William Edwards show that cash rents in Iowa have risen steadily. "In 2006, the average cash rent on Iowa farmland was $133 per acre. Rents rose more than 11 percent in 2011, but the return based on the price of the land dropped from 3.8 percent to 3.4 percent," says Wise. And there has been plenty of anecdotal evidence that cash rents are up again in 2012, just land values are higher as well.


Does that mean farmland is losing its shine as an investment? Not according to Wise. "My local bank has been advertising 0.77% interest on a seven-month CD, and they're bragging about it. Returns on stocks, bonds and commodities have been so weak and volatile in recent years that investors have fled those assets and moved increasingly into farmland. For the immediate future, I think we'll continue to see farmland prices rise. But as far as income for investors goes, the return on investment will go down," says Wise.

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

Survey: Iowa Farmland Up 11% in Past Six Months

Mar 15, 2012

Mike Walsten

The value of Iowa farmland rose 10.8% between September 2011, and March 2012, according to a survey conducted by the Iowa Farm and Land Chapter #2 REALTORS Land Institute (RLI). Combining that 10.8% increase with the 12.9% gain reported in September for the March-September period indicates a statewide average increase of 23.7% for the year ending March 1, 2012.

All nine Iowa crop reporting districts showed an increase for the most current six-months. The increases varied from a 9.0% increase in the northeast district to a 12.9% gain in the southwest district. Gains by district are: central, 10.5%; east central, 9.4%; north central, 12.6%; northeast, 9%; northwest, 11.6%; south central, 11%; southeast, 9.1%; southwest, 12.9%; west central, 11.1%.

The survey pegged the statewide average value of an acre of high-quality cropland at $9,370 an acre; medium-quality cropland at $7,148 an acre; low-quality cropland at $4,879; non-tillable pasture at $2,418 an acre; and timber at $2,064 an acre.

The most expensive high-quality cropland, according to the survey, is located in the northwest district, which lists an average of $10,656 an acre. The least expensive high-quality cropland, according to the survey, is located in the south-central district, which reports an average of $7,089 an acre. The south-central district is the only district to report an average value for high-quality cropland at less than $8,000 an acre. In addition to the northwest district, the west-central district also lists an average in excess of $10,000 an acre for high-quality cropland -- $10,186 an acre. Four districts list an average value of between $9,000 and $10,000 an acre for high-quality cropland while two districts list an average value between $8,000 and $9,000 an acre for high-quality cropland.

Factors contributing to the increase in farmland values include: strong commodity prices, favorable long-term interest rates and limited amount of land offered for sale. Other factors include: lack of stable alternative investments, livestock prices and fear of inflation. Concerns that could affect farmland value in the future include: higher input costs, increase in interest rates, larger amounts of land being offered for sale, lower commodity prices and continued uncertainty of the U.S. and world economies.

The Iowa RLI has conducted the survey since 1978.

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

Nebraska Farmland Values Soar 31%

Mar 15, 2012

Mike Walsten

The value of Nebraska farmland rocketed 31% higher in 2011, according to preliminary survey results conducted by the University of Nebraska-Lincoln. The survey pegged the state's all-land average value as of February 1, 2012 at $2,410 an acre, the largest annual gain, both in dollar terms and percentage, is the largest ever recorded in the 34-year history of the UNL land market survey series.

Cropland, in particular, showed pronounced value gain in every region of the state, reports Bruce John, UNL ag economist who conducts the survey. In several areas of the state, values for some of the cropland classes rose 35% or more during the 12-month period. "Clearly, a booming cash-grain economy in 2011 translated into spirited bidding for cropland," Johnson states.
"And at the same time that demand was robust, the amount of land for sale in any given local area was generally minimal. UNL survey reporters frequently commented that the land transfer market has ben "so thin" that it is difficult to get a good reading on the market. In short, there are many 'wannabe buyers' and few 'wannabe sellers.'"

The grazing land classes showed more modest value gains for the year, he notes, but overall the state still showed a 19% increase for non-tillable grazing land. Tillable grazing land class recorded significantly higher values and percentage gains.

The survey found the value of center-pivot irrigated land (pivot value not included) ranged from $2,600 per acre in the northwest district to nearly $8,000 an acre in the east district with the highest quality irrigated farmland exceeding $10,000 per acre. Dryland cropland values show an even greater spread of more than seven-fold from west to east, Johnson observes.

The survey pegs the average value of an acre of farmland ranged from $642 an acre in the northwest district to $6,044 an acre in the east district.

 

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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