Apr 19, 2014
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April 2013 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.

Texas Rural Land Market Sees Growth in 2012

Apr 30, 2013

Mike Walsten

The Texas rural land market saw a "modest expansion" in both the number of sales and total acreage transferred in 2012, reports Dr. Charles E. Gilliland, Real Estate Center, Texas A&M University. In addition to the rise in sale volume and transaction size the market also posted a 6% increase in the value of an average acre of rural Texas land.

At the recent 23rd annual Outlook for Texas Land Markets in San Antonio, Gilliland said the recent upswing in both volume and size of transactions "suggest pent-up demand has slowly begun to ignite activity. Those results made 2012 the most active year since 2008. Sale volumes continued to approach numbers of transactions last posted in the 1990-2000 era."

He believes fears land prices would eventually drop, "so evident in the past several years," which made buyers reluctant to purchase, "appear to have abated in 2012. In addition, buyers seem to have grown weary of delaying their plans and may even have begun to anticipate rising prices in the years ahead."

"In fact," he continues, "Texas land markets posted strong price increases in 2012. Irrigated cropland markets in the Panhandle, the South Plains and south Texas as well as recreation ranches in the Austin-Waco-Hill Country region of central Texas experienced especially strong price momentum in 2012. Those markets led to the charge to an overall statewide increase of 6% over 2011 prices."

Gilliland says most areas of the state shared in the uptick in prices "except for West Texas ranchland areas and the Gulf coast area where prices were essentially flat overall. The state-wide price of $2,281 per acre compares to the 2011 year-ending price of $2,150 -- a strong increase for 2012 and a new all-time high."

Sale volumes picked up across the state, he notes. "The 5,103 sales reported for year end 2012 surpassed the 2011 volume of 4.520, recording a 12.9% increase. The level of activity has returned to volumes last seen in the late 1990s. The number of sales in 2012 was 241 transactions above the 1999 volume."

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

Institutions' Farmland Index Yields Highest Q1 Return on Record

Apr 24, 2013

Mike Walsten

An index of farmland investments held by large pension funds posted its strongest first quarter gain on record. The index, founded by the National Council of Real Estate Investment Fiduciaries (NCREIF), rose 5.44%. That gain was comprised of 4.42% appreciation and 1.02% income return. This is the highest first quarter return since the index began in 1991, NECREIF states in a press release. The next closest first quarter return was 4.02% in 2006.

The 5.44% return is significantly higher than the 3.78% total return in the first quarter 2012 and the 2.38% total return from first quarter 2011. The difference in performance is all attributable to appreciation; income returns differed by one or two basis points.

The alternating trend of better performance between permanent cropland and annual cropland continued again this quarter, NECREIF states. Annual cropland had a 6.82% total return compared to permanent cropland’s 2.78% return. This marked the seventh consecutive quarter that the property subtypes alternated in outperforming each other. Annual cropland has outperformed permanent cropland in the first quarter the last six years. 2007 was the last time permanent cropland performed better in the first quarter.

The Mountain region was the best performing area in the first quarter, according to NECREIF. The 14.58% total return exceeded every other region by at least 500 basis points. Most of the return was driven by appreciation, 13.37%. The Pacific Northwest was the second best performing region with a total return of 8.05%. It was also the best performing region over the past four quarters with a 24.30% total return.

At the other end of the spectrum, the Corn Belt and Southeast regions were the lowest performers in the first quarter with a total return of 3.07% and 3.95% respectively. The Corn Belt was the highest performer last quarter, so a pause isn’t surprising. The Southeast along with the Southern Plains have been struggling over the past year. They were the two worst performing regions over the past four quarters.

The NCREIF Farmland Index consists of 549 investment-grade farm properties; comprised of 405 annual cropland properties and 144 permanent farmland properties. The index includes 183 properties in the Corn Belt, 122 in the Pacific West, 64 in the Delta States, 53 in the Pacific Northwest, 45 in the Mountain States, 33 in the Lake States, 25 in the Southern Plains and 23 in the Southeast. This data enhances the ability of institutional investors to price the risk of farmland investments across the United States.
 

The National Council of Real Estate Investment Fiduciaries (NCREIF) is an association of professionals with significant involvement and interest in pension fund real estate investments.

Click here for the full press release.

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

Creighton Survey Finds Nearly 30% of Farmland Sales are for Cash

Apr 19, 2013

Mike Walsten

Creighton University's Rural Mainstreet Index confirms still strong rural economy and farmland values. The monthly survey found the Rural Mainstreet Index (RMI), which ranges between 0 and 100 with 50.0 representing growth neutral, climbed to 58.3 from March’s solid 56.9. The survey of bank CEOs in 10 midwestern states is conducted monthly by Dr. Ernie Goss at Creighton University.

On farmland values, the monthly survey's farmland price index dipped to a still strong 66.9 from March’s 67.2. This is the 41st consecutive month that the farmland-price index has been above growth neutral. The farm equipment-sales index declined to 57.3 from 60.5 in March. “Crop farmers and businesses linked to crop farming and energy continue to experience very positive economic conditions with improving balance sheets,” says Goss.

In addition, thebank CEOs were asked about the share of farmland sold to nonfarm investors and the proportion of farmland sold for cash. Bankers indicated that almost one in five, or 19.8%, of sales were to nonfarm investors. This is almost identical to last April’s 21%. Bankers reported that approximately 28.6%, only slightly less than last April’s 29%, of farmland sales were for cash.

“Despite very strong growth in farmland prices, bankers are indicating little change in investors’ appetite for farmland. Likewise, farmland price growth over the past year in excess of 20% for parts of the region did not alter the share of land purchases for cash,” states Goss.

Each month, community bank presidents and CEOs in nonurban, agriculturally and energy-dependent portions of a 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

This survey represents an early snapshot of the economy of rural, agriculturally and energy-dependent portions of the nation. The Rural Mainstreet Index (RMI) is a unique index covering 10 regional states, focusing on approximately 200 rural communities with an average population of 1,300.

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

Missouri's Ron Plain Talks about Farmland: Boom or Bubble?

Apr 18, 2013

Mike Walsten

Here's an interesting video from the University of Missouri's Ron Plain. Here's talking about farmland values and whether or not there is a bubble.

 

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

Canadian Farmland Rises 10% Last Half of 2012

Apr 16, 2013

Mike Walsten

The average value of Canadian farmland rose 10% during the second half of 2012, according to Farm Credit Canada (FCC). That rise follows gains of 8.6% and 6.9% in the previous two six-month reporting periods. The current national average increase of 10% is the highest percentage gain since FCC began reporting on farmland values in 1985. The second highest increase occurred in the first half of 2012, at 8.6%. The last time the average value decreased was by 0.6% in 2000.

Farmland values remained stable or increased in all provinces. Quebec experienced the highest average increase at 19.4%, followed by Manitoba at 13.9% and Ontario at 11.9%.

Saskatchewan and Alberta posted 9.7% and 7.2% average gains, respectively followed by Nova Scotia at 6.8%, Prince Edward island at 5.7% and British Columbia at 0.4%. Values were unchanged in New Brunswick, Newfoundland and Labrador.

Prov comp eCanada

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

Farmland v. Stock Market? Nod Goes to Farmland but There Are Warning Signs

Apr 08, 2013

Mike Walsten

Investments in farmland tend to out-perform investments in the stock market, according to updated research and analysis from Dr. Mike Duffy, Iowa State University. But, like most things, timing is everything. In addition, his analysis raises a warning flag about current high land prices.

In his most recent look at the question (click here for the full analysis), Duffy updates his previous analysis which compares money invested in farmland versus the S&P index. He assumes $1,000 invested in farmland and in the S&P in 1960, 1970 and 1980. He also assumed net land rent (rent minus taxes) is fully re-invested in land and all dividends are re-invested in the stock market.

Figure 1 shows the comparison for money invested in 1960. The figure shows Iowa farmland far out-pacing stock market returns by about 154% through 2012. According to Duffy's analysis, $1,000 invested in farmland amounted to $289,164 while $1,000 invested in the stock market totaled $113,592. Note the bulk of farmland's advantage came in the last five years.1960

Figure 2 shows the comparison for money invested in 1970. The figures show Iowa farmland beating the stock market by 122%. Again , note the bulk of farmland's advantage came within the past five years.1970

Figures 3 shows the comparison for money invested in 1980. Here the results are flipped as the stock market outperformed farmland by about 40%. Anyone owning farmland and/or operating a farm in the early 1980s knows well what happened to farmland values during the early 1980s. The farmland values peaked in 1981 so farmland purchased the end of 1980 was purchased near the peak price. The drop in prices did not end until 1987; the slow climb upward began in 1988. Prices did not return to their 1981 peak level until 2003, 22 years later. No wonder the 1980 comparison favors the stock market.1980

Figure 4 shows a comparison of returns in 2012 based on the year of initial investment. It's message is somewhat unsettling. It charts the returns to farmland as a percent of returns to the stock market. Anything above 100% is positive for farmland relative to the stock market. The chart shows the stock market wining the returns from 1974 to 1984. That's when land values boomed, rental returns fell as a percentage of farmland values, farmland prices peaked in 1981 and then collapsed. Looking to the right side of the chart shows the stock market is once again positive relative farmland. That's because rental rates (no doubt seemingly high by tenant standards) are falling as a percentage return due to the strong rise in the value of farmland. This is very concerning. Is it a sign of a market top? We don't know but it is certainly a reason for being very cautious about farmland purchases, leverage and working capital management.DuffyMar13fig4

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

$16,000 for Central Illinois Farmland!

Apr 04, 2013

Mike Walsten

Central Illinois saw a new high price of $16,000 an acre paid for quality farmland March 15. The auction, conducted by Worrell-Leka Land Services, LLC, Jacksonville, and called by Darrell Moore, Winchester, featured 596 acres in Cass and Morgan counties. Four of the tracts, featuring 308 acres of PI 128 to 142 (maximum 147) land are located northeast of Litterberry in Morgan County. Two tracts, featuring 288 acres of PI 121 and 124 land are located south of Virginia in Cass County.

The record-breaking price came on a 96-acre tract, the first tract offered, which was 100% tillable and featured high-quality soils with a PI rating of 142.3. Tract 2 also contained 96 acres, nearly all tillable, and carried a PI rating of 141.4. It sold for $15,400 an acre. Tract 3, which featured 48 acres, 98% tillable, and a PI of 138.8, sold for $11,700 an acre. Tract 4, which contained 68 acres, 78% tillable, and a PI of 127.7, brought $8,125 an acre. Tract 5, 76 acres located in Cass County, carried a PI of 124.2. It sold for $5,150 an acre. Tract 6, 213 acres also located in Cass County, featured a PI of 120.8 and a CRP contract paying $100.75 per acre on 46 acres until 2017. It brought $5,150 an acre.
 

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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