Sep 3, 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.

Softer Farmland Values Seen In Illinois

Aug 27, 2014

Mike Walsten

Illinois farmland values softened in the first half of 2014, according to a survey of farmland real estate professionals conducted by the Illinois Society of Professional Farm Managers and Rural Appraisers. Prices generally edged 2% to 4.1% lower, according to the Midyear Land Values Snapshot Survey conducted by the professional group.

The decline in values is for the first half of 2014 and survey respondents expect the trend in prices paid to be either stable or declining modestly over the next year, says Dale Aupperle, Heartland Ag Group, LTD., Forsyth, IL. Aupperle is overall chair of the survey. He explained that survey responded indicated that during the first half of 2014 land values decreased by 2% for excellent-quality farmland; decreased by 3.7% for good-quality land; dropped by 4.2 % for average-quality land, and by 6% for fair quality farmland.

In a normal year, excellent-quality farmland averages over 190 bu. of corn per acre, good-quality farmland averages between 170 and 190 bu. per acre, average-quality farmland averages between 150 and 170 bu. per acre, and fair-quality farmland averages below 150 bu. per acre. On July 1, 2014, farmland prices averaged $13,000 for excellent-quality farmland, $10,700 for good-quality farmland, $8,600 for average-quality farmland, and $6,700 for fair-quality farmland. This compares to $13,200, $11,200, $9,000, and $8,300 prices respectively for the same time period in 2013, said Gary Schnitkey, Ph.D., University of Illinois College of ACES, who conducts and compiles the twice-a-year surveys.

Schnitkey adds 64% of those responding indicate less farmland was sold in the first half of 2014 as compared to a year prior. "Participants were evenly divided on expectations for volume in the second half of 2014: 33% expect more land being offered for sale in the second half than last year while 38% expect the same amount of land and 29% expect less."

Farmers still leading buyers. "Local farmers are still the primary buyers," Schnitkey says, consisting of 71% of all buyers. Anticipating the future, over half (55%) expect land prices to decrease between 1% and 5% in the next year while a modest 29% expect the decrease to be larger -- between 6% and 10%.

"When you look at what is causing this softening of prices, there are a number of factors that come in to play," Aupperle explains. "The most dramatic is the drop we’ve seen in commodity prices."

He says most respondents expect corn prices to average $3.75 per bu. for the 2014 crop year. "This translates into lower returns on a per-acre basis and makes it more difficult to justify higher prices being paid for the land. Couple that with an expectation of interest rates to possibly rise over the next year, higher inputs costs and the potential for very high costs for propane this winter, and there has been a dampening of attitude."

He also expects there will be drops in cash rents going into 2015 with a decrease of $33 per acre being forecast by the survey respondents.

"This softening in prices has been expected for some time and this is not a doom and gloom scenario," Aupperle warned. "Land prices are still in ranges that have never been seen before and mindful land owners and operators can still be profitable with the correct management programs in place. Some of survey respondents indicated a one-in-10 chance for large price declines over the next five years, but 31% expect that range to be only a negative 1% to 5% per year."

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

 

Fed Banks Find Stable Farmland Values First-half 2014

Aug 14, 2014

Mike Walsten

Farmland values tended to stabilize the first half of 2014, following weakness at the start of the year, according to recent surveys conducted by the Federal Reserve Banks of Chicago and Kansas City. The exception is in the southern Corn Belt and Mid-South, where values are weaker. The Chicago Federal Reserve reports farmland values rose 2% during the second quarter of 2014. The result of that firming in values put the value of district farmland in the central Corn Belt at 3% higher than a year earlier.

The Kansas City Federal Reserve says the value of both dryland and irrigated cropland rose slightly less than 1% during the second quarter. That results in both categories of crop marking a 6% annual increase. The bright spot is ranchland values, which rose more than 2% in the second quarter across the Central and Southern Plains. On an annual basis, district ranchland values are up 9%.

The exception is the St. Louis Federal Reserve Bank, which indicates the value of farmland is down 6.7% from the high posted in the fourth quarter of 2013. Pastureland values are down 7.5% from fourth-quarter 2013, as well.

These surveys give land watchers a view of the pulse of land values through midyear. The rise in commodity prices this spring tended to support farmland prices, with the exception of the southern Corn Belt and Mid-South. Going forward demand will obviously be dampened by the low commodity prices but strong yield prospects will tend to soften the weakening in demand.

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

 

USDA: U.S. Farmland Values Rise 8.1% Versus Year Earlier

Aug 01, 2014

Mike Walsten

The value of U.S. farmland rose 8.1% as of January 2014, according to USDA's Land Values Summary released this afternoon. The survey shows a land market that was still rising as of early 2014 before the reality of lower corn, soybean and wheat prices resulted in some weakening in land values this year.

USDA pegs the average value of an acre of U.S. farmland, including buildings as well as real estate, reached an average price of $2,950 an acre. The Northern Plains report the strongest increase with a 16.3% rise while the Southeast regions reports the smallest gain at just 1.1%. The highest farm real estate values are in the Corn Belt region at $6,370 per acre while the Mountain region had the lowest farm real estate value at $1,070 per acre.

The value of U. S. cropland rose by $290 per acre, 7.6%, to $4,100 per acre from the previous year. In the Northern Plains region, the average cropland value increased 13.6% from the previous year. However, in the Mountain region, cropland values decreased by 5.1%.

U.S. pasture values increased to $1,300 per acre, or 11.1%, above 2013. The Southeast region had the smallest percentage increase in pasture value, 0.5% above 2013. The Northern Plains had the highest increase at 26.5%.

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

 

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.

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