Aug 22, 2014
Home| Tools| Events| Blogs| Discussions Sign UpLogin


March 2013 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.

Iowa Farmland Posts 9.4% Six-Month Gain

Mar 28, 2013

Mike Walsten

The value of Iowa farmland rose 9.4% from September to March, according to a survey of land professionals conducted by the Iowa Chapter of the REALTORS Land Institute. Combining that 9.4% gain with the 7.7% increase from March to September found in the September survey yields an increase of 17.1% for the year-long period ending March 1.

All nine Iowa crop reporting district showed an increase. The districts varied from a 6.7% rise in west central Iowa to a 12.6% increase in northeast Iowa for the September to March period.

The survey pegs the statewide value of an acre of high-quality cropland at $11,515 an acre; the average value of an acre of medium-quality cropland at $8,693 an acre; the average value of an acre of low-quality cropland at $5,864 an acre. The northwest crop reporting district reports an average value of $13,387 an acre for high-quality cropland, the highest average in the state. The south-central district reports the lowest average price for high-quality cropland at $8,480 an acre. Of the nine state crop reporting districts, the south central is the only district with a sub-$10,000-an-acre average for high-quality cropland.

Send me an email if interested in seeing a copy of my newsletter, LandOwner.

 

Nebraska Farmland Posts 25% Annual Gain

Mar 25, 2013

Mike Walsten

The value of Nebraska farmland rose 25% over the 12-month period ending February 1, according to preliminary data from the 2013 University of Nebraska-Lincoln Nebraska Farm Real Estate Market Developments Survey. "Following on the advances for each of the previous two years of 22% and 32%, respectively, the 2013 all-land value of $3,040 per acre is more than double the value of just three years previously, in early 2010," states survey coordinator Bruce Johnson. "Few would disagree that this period has clearly been a land boom."

While the percentage gains were reported across the state for all land classes, the gains were highly variable. Dryland cropland values, for instance, saw gains of less than 10% in the northwest and north districts while the south and southeast districts saw increases of 30% and 38%, respectively.

"Our 2013 survey reporters frequently commented that current land prices being paid seem overly-optimistic," states Johnson. "In turn, when asked what they expected land value movements to be for the remainder of 2013, as well as out three to five years, the vast majority saw a market which had topped out with little, if any upward movement in the near future. In fact, a sizable number of reporters thought values could weaken somewhat in the next few years."

The survey also found gains in cash rental rates with those increases reflecting the dramatic impact of the 2012 drought. Preliminary estimates for dryland cropland cash rents in eastern Nebraska averaged about 8% above a year ago, while rates in the rest of the state rose 5% or less. Cash rental rates for center-pivot irrigated cropland rose 13% to 15% compared to a year earlier.
 

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

Bank Survey Finds Near-10% Rise in Cash Rents Expected for 2013

Mar 21, 2013

Mike Walsten

A survey of rural bankers in 10 Midwestern states finds then anticipating farmland cash rents to rise 9.3% in 2013. That finding is part of the regular monthly Rural Mainstreet Index update of rural banker attitudes conducted by Creighton University Economist Dr. Ernie Goss. The March update found: the rural economy continues expansion; bankers expect cash rents for farmland to grow by 9.3% this year; agriculture input prices are expected to grow by 6.5% from last year; and more than half of bankers reported an upturn in the percentage of farmland purchases that are bank financed.

The Rural Mainstreet Index (RMI), which ranges between 0 and 100 with 50.0 representing growth neutral, dipped to a still healthy 56.9 from February’s 58.2. “Very healthy farm income continues to boost the Rural Mainstreet economy though growth has slowed a bit,” says Goss. However, the survey found more and more bankers concerned about recent strong growth leading to a bubble. For example, Dale Bradley, CEO of The Citizens State Bank in Miltonvale, Kan., said, “I still think we are on the bubble.”

The farmland price index expanded slightly to a strong 67.2 from February’s 67.0. This is the 40th consecutive month that the farmland-price index has been above growth neutral. “Current readings are consistent with farmland price growth between 12% and 16%. The farm equipment-sales index declined to 60.5 from 65.8 in February. The Federal Reserve’s cheap money policies continue to bolster farm commodity prices, farm income, farmland prices and farm equipment sales. The Fed has indicated little change in this pro-agriculture money policy for 2013, which means we will likely continue to see healthy growth in farmland prices and farm equipment sales,” states Goss.  

This month bankers were asked several questions related to agriculture conditions in the region.  First, they were asked how much they expected the cost of farm/ranch inputs, such as fertilizer, to increase for 2013.  On average, bankers anticipate growth of 6.5% from last year’s levels.  Jeff Bonnett president of Havana National Bank in Havana, Ill., said he and his bank officers were expecting a 9% growth from 2012 levels.

Second, bankers were asked how much growth they expected in agriculture land rents for 2013.  A 9.3% increase in cash rents for farmland is expected for 2013.  

Finally, bankers were asked to gauge the growth in the financing of farmland purchases over the past two to five years.  Approximately 3.2% of bank CEOs indicate they were seeing the highest expansion in the financing of farmland in decades. Approximately 52.4% indicate an increase in the financing of farmland. Another 19% report no change in the percentage of farmland purchases that were financed, while 28.6% indicate a reduction in financing of farmland sales (i.e. an increase in cash sales).

According to Michael Flahaven, president of Wenona State Bank in Wenona, Ill., “Farmland financing has increased at our bank. However, after talking with other bankers, I think we are the exception.”

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

Survey: Excellent-quality Illinois Farmland Up 21% in 2012

Mar 14, 2013

Mike Walsten

A survey of the state's farm managers and appraisers found the value of Illinois farmland again rose by double-digits in 2012 and farmland values are expected to rise in 2013 as well, according to the 2013 Illinois Land Values and Lease Trends Report released today at the Illinois Land Values Conference sponsored by the Illinois Society of Professional Farm Managers and Rural Appraisers.

"The price of excellent productivity farmland was estimated at $10,510 per acre price on Jan. 1, 2012 and $12,670 per acre price on Dec. 31, 2012, an increase of 21% during the year," says Dale Aupperle, AFM, ARA, general chairman for the annual Land Values Report program sponsored by the Society. "Good quality farmland price was estimated at $8,980 at the beginning of the year and $10,500 at the end of the year, an increase of 17%. Average farmland price was $7,560 per acre at the beginning of year and $8,770 at the end of year, an increase of 16%. And Fair productivity price was $5,980 at the beginning of the year and $6,980 at the end of the year, indicating a price increase of 17%."

The survey was done late in 2012 and early in 2013 by members and affiliates of the organization and reflects activity across the state throughout 2012. The data were compiled by Bruce Sherrick, Ph.D. at the University of Illinois and Gary Schnitkey, Ph.D., also with the University’s Colleges of ACES.

"Land price increases in 2012 were comparable to 2011 increases, when all land classes has close to a 20% increase. Increases in 2011 and 2012 were above average. Average yearly increases in land prices averaged 7% across all of Illinois between 1970 and 2012." Schnitkey explains. Yearly increases averaged 12% from 2006 to 2012.

The drivers supporting the higher prices are many, Aupperle states. "Leading the way are prices being paid for corn and soybeans. Mother Nature slashed corn and soybean yields in 2012 which resulted in skyrocketing grain prices. $7.00 to $8.00 per bushel corn and $15.00 to $18.00 per bushel soybeans were significant and offset much of the yield drop," he notes.

"Farmland truly is what it earns! Net farm income across Illinois was stable-to-increasing this past year due to higher commodity prices and the payouts from crop insurance programs," he continues.

No Slowdown In Sight

"Most survey respondents expect farmland prices to increase in 2013," Schnitkey says. Forty-seven percent of respondents expect farmland prices to increase, with 11% expecting prices to rise more than 5% and 36% expecting prices to rise between 1% and 5%. Of the respondents, 23% expect farmland prices to remain the same while 9% expect farmland prices to decline. "However," Schnitkey adds, "price increase expectations are more cautious for 2013 as compared to similar responses last year for 2012. When asked last year, more than 63% of respondents expected prices to increase for the coming year. This year, only 47% expect price to rise in the coming year."

Rents Up, Too

In general, land rental incomes received by landlords were higher in 2012 compared with 2011 figures. "For excellent quality farmland, traditional crop shares had average income of $345 per acre, cash rent had $348 per acre, and custom farming had $490 per acre," Schnitkey explains. Returns from share rent and cash rent leases were near one another in 2012 across all land qualities. Custom farming had the highest returns. He notes that 43% of the leases in 2013 will be share rent leases. Rates for cash rent leases are expected to stay the same for the coming year unless commodity prices decline to significantly low levels. The majority of the lease arrangements are still one year in length


Other points noted in the survey include:

    • Estate sales accounted for 58% of the volume of land on the market. The next category was retiring farmers.
    •  Farmers accounted for 72% of the purchases made in 2012 as they reinvested into their businesses. Individual investors were the next largest group.
    • 44% of the transactions were sold by public auction, 13% by multi-parcel auction and 35% privately.

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

Long-time Land Bull Asks: "What Are You Waiting For?"

Mar 11, 2013

Mike Walsten

"What are you waiting for?" That's the question asked by long-time land bull Murray Wise, president of Murray Wise Associates, Inc., in his latest blog/email posting. We thought his points are enlightening and, therefore, we share them below:

Three or four years ago, people began to suggest that farmland prices were getting too high for their taste. Some suggested that "maybe I'll wait and get them at a lower price later."  

This week, a co-worker asked if any of those people had succeeded in buying at a lower price. I couldn't think of any. Some came back later and bought land at a price that  was higher than the price they said was too high. The rest are still waiting. So it's worthwhile to ask what it will take to bring back the prices they missed.  

Let's do the math. We'll use Iowa's Farmland Value Survey, just for illustration purposes, since Iowa State's University Extension and Outreach Land Values Survey gives us data going back several decades. In Iowa, prices have risen every year except one since 1999. (The one exception was 2009, when the average price per acre declined 2.2%.)   

So let's picture a fellow who got interested in farmland in 2009, when land in the average county was selling at $4,371 per acre. (I actually know a number of such "fellows," but we'll talk about one just to keep it simple.) Then he watches it rise to $5,064.

"Too much, too fast," he says. "I'll get it when the price backs off a bit." So he waits, and a year later it's at $6,708. He remembers that $4,371 price and decides to wait a bit longer. Fast forward to the latest average price in the survey: $8,296 (with high-quality land significantly higher). Still waiting.  

So what's it going to take to get back to that level? Prices will pretty much have to drop by half. That hasn't happened since the 1980s, when we had a combination of inflation, record interest rates and a soybean embargo that created a "perfect storm." But for all of our problems today, there's no reason to expect anything similar.  

Beyond that, farmland values have been remarkably resilient through turbulent markets that hammered every other investment class. Remember what happened to the stock markets after the 9/11 attacks? Iowa farmland increased by a nice 3.7% for 2001 and 8.2% in 2002. It took the worst financial crisis since the Great Depression to produce the piddling 2.2% loss in 2009 (mentioned earlier).  

So friends are waiting on a price that isn't coming back. Maybe they have their money under the mattress, or sitting in CD's at 1.5%. Or they're taking their chances in the stock, bond and commodity markets.   

Will 2013 repeat the 23.7% increase we saw on Iowa farmland in 2012? Probably not, though anybody who's looking for that kind of quick profit doesn't need to be buying farmland anyway.  

But it's even more unlikely that we'll see a return to the prices of five years ago. If you're waiting for those, you may as well stop looking. On the other hand, I think farmland continues to be a great investment at the current price levels, and those who buy today will enjoy solid returns and stability for years to come.

Commentary from Murray Wise, Murray Wise Associates, LLC, Champaign, Illinois.

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

Log In or Sign Up to comment

COMMENTS

 
 
 
The Home Page of Agriculture
© 2014 Farm Journal, Inc. All Rights Reserved|Web site design and development by AmericanEagle.com|Site Map|Privacy Policy|Terms & Conditions