SOURCE: Farmland Investor Letter
The pace of farmland price appreciation across the Mid-South and Southeast U.S. continued to flatten in the second quarter, according to the latest Farmland Market Survey released by Farmland Investor Letter.
Non-irrigated cropland values rose at an estimated 6.3% year-over-year pace, down from 7% in the first quarter. Irrigated tracts increased at an 8.2% annual pace, unchanged from the previous quarter. Pasture values were up 2.4% from a year ago, also virtually even from the 2.5% 12-month rate through the first quarter.
The survey, conducted from June 15, 2013 through August 14, 2013 was based on 102 responses from appraisers, property managers, lenders, real estate brokers and landowners located in Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, Missouri and Tennessee. Farmers and investors expect cropland values to remain stable through the third quarter, despite declining crop commodity prices. Low interest rates continue to support land values. However, with the Federal Reserve expected to begin tapering 10-year Treasury note purchases in coming months, mortgage rates are already starting to notch up. A sustained increase in interest rates would put pressure on further land price appreciation. In addition, strong returns from the stock market—the S&P 500 Index has generated an 18.3% total return year to date—continue to compete for the attention of investors.
Survey participants estimated that non-irrigated cropland across the region was worth an average $3,141 per acre in the second quarter of 2013. Irrigated cropland values averaged $4,477 per acre. Pasture values averaged $2,239 per acre. On an individual state basis, non-irrigated cropland values ranged from a high of $4,925 per acre in Missouri to a low of $2,479 per acre in Georgia. Irrigated cropland values ranged from a high of $6,833 per acre in Missouri to $3,556 per acre in Alabama. Average pasture values ranged from a high of $2,900 per acre in Florida to $1,771 per acre in Arkansas.
Cash rent increases for cropland and pasture continue to lag land price inflation across the region. Rents on non-irrigated cropland averaged $114 per acre, ranging from an average $69 per acre in Georgia to $213 per acre in Missouri. Irrigated cash rents averaged $199 per acre across the region, and ranged from an average $135 per acre in Alabama to $328 per acre in Florida. Pasture rents averaged $36 per acre, ranging from $24 per acre in Florida to $78 per acre in Tennessee. Rent income yields, which are calculated by dividing gross cash rent by land value, offers insights into the relative pricing of land tracts regionally. Across the Mid-South/Southeast, non-irrigated tracts are estimated to be generating a 3.6% rent income yield; irrigated tracts 4.4% and pasture 1.6%.
With farm crop prices continuing to contract, survey panelists remain cautious in their outlook for both cropland and pasture values, forecasting that prices would remain stable though the third quarter. Respondents are most optimistic for irrigated cropland tracts, where 35% expect prices to increase, while 64% look for no change. Buyer demand for irrigated tracts appears strongest in Missouri and Louisiana where 67% and 60%, respectively, of respondents look for irrigated land values to continue rising. Interest in non-irrigated tracts appears strongest in Missouri, where 80% of respondents forecast higher prices.