Apr 18, 2014
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RSS By: Mike Walsten, Pro Farmer

Mike Walsten has covered major business trends in agriculture for more than 35 years.

Rise in Value of North Dakota Farmland Cools, Still 8% Higher

Apr 15, 2014

 

Mike Walsten

The torrid rise in the value of North Dakota farmland cooled in 2013, but the market, as a whole, still shows an annual gain of 8% for 2013. That's according to Andrew Swenson, North Dakota State University Extension Service farm management specialist. His estimate is derived from the published results of a January 2014 county survey commissioned by the North Dakota Department of Trust Lands.

“Land values showed about an 8% increase from the previous survey, compared with a 42% increase during 2012,” Swenson says. “It is quite possible that land values peaked in the last few months of 2013, when the financial impact of lower crop prices became more evident, especially in the Red River Valley, where two major crops, corn and sugar beets, had negative returns, on average.”

Land values in the northern Red River Valley region showed a 4% decline (to $3,283) from January 2013 to January 2014 after a 56% increase the previous year. All other regions had positive year-to-year results, with the lowest being 3% (to $4,319) in the southern Red River Valley counties and (to $2,058) in the northeastern region.

“Unless crop prices have a significant rally, it is likely that next year’s survey will confirm that the historic 11-year run in land values, averaging an annual increase of 15%, is over,” he observes.

The reality of crop price declines was abrupt. In 2013, net farm income dropped more than 80% in the Red River Valley and approximately 50% in the rest of the state, according to results from those enrolled in the Farm Business Management Education program.

“In addition, 2014 projected crop budgets were sobering,” Swenson says. “Producers and their bankers are more cautious about jumping on the land escalator. However, if interest rates remain low and cash prices stabilize above $4 per bushel for corn, $11 for soybeans and $6.50 for wheat, it is possible that land values may have a soft landing.”

The largest increase in cropland values (January 2013 to January 2014) was about 28% (to $1,278) in the southwestern region, nearly 15% (to $1,738) in the north-central region and 13% (to $1,523) in the south-central region. Three regions, east-central (to $2,490), southeastern (to $3,183) and northwestern (to $950), had increases of 8% to 10%.

“The survey indicated that land rents, as typical, did not change as much in percentage as land values,” Swenson says. “On average, cropland rents increased about 4% (January 2013 to January 2014).”

Surprisingly, the largest increase was 8% (to $124.20) in the southern Red River Valley. The average rent increased about 7% (to $60.10) in the south-central and (to $38.50) southwestern regions. Rents increased 4% to 5% (to $49.90) in the north-central, (to $56.70) in the northeastern and (to $96.80) in the southeastern regions. Crop land rent increased by only 2% (to $66.90) in the east-central region and had slight declines (to $34.70) in the northwestern region and (to $89) the northern Red River Valley.

Swenson cautions that the values and rents are averages for large multicounty regions. Prices can vary considerably within a region because of soil types, drainage and location.
 

 

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

Land Pros Report 5% Slip in Iowa Farmland Values

Mar 27, 2014

Mike Walsten

The average value of an acre of Iowa farmland slipped 5.4% from September 2013 to March 2014, according to the semi-annual survey conducted by the Iowa Chapter of REALTORS Land Institute (RLI). Combining the 5.4% six-month decline with the 1.2% increase reported in the six months preceding Sept. 1 indicates a statewide average decrease of 4.2% for the year ending March 1.


"The decline reported by the survey is the first six-month decrease and annual decline since 2009," reports Kyle Hansen, Hertz Real Estate Services, Nevada, and survey coordinator. "The September survey showed a few crop reporting districts reporting declines in farmland values. But this is the first to show a decrease on a statewide basis since 2009," he adds.  


All nine crop reporting districts showed decreases during the past six months. The districts varied from a 2.1% decline in southwest Iowa to a 8.4% decrease in southeast Iowa. The survey found an acre of high-quality Iowa cropland averaged $11,104 on March 1, down 4.9% from Sept. 1. The value of an acre of medium-quality cropland averaged $8,323, according to the survey, down 5.6% from Sept. 1. The survey found an acre of low-quality cropland fell 6.1% from Sept. 1 to a statewide average of $5,432.


The survey found the value of pasture land and timber land rose compared to six months earlier. The gains reflect a rising demand for grass for cattle operations, renewed interest in hunting and fishing land by urbanites and demand from conservation agencies developing public recreational areas. The value of pasture rose 2.2% to $2,736 an acre while the value to timber rose 2.6% to $2,268 an acre. Leading gains was the southwest crop district which saw the average value of pastureland rise 9.7% over the past six months and the value to timber ground surge 28%.


Factors contributing to the decrease in farmland values include, according to survey responses: lower commodity prices, higher input costs, government regulation uncertainty and uncertainty of the U.S. and world economy. Positive factors cited include: low interest rates, limited amount of land offered for sale, strong livestock market, renewed interest from investors, lack of stable alternative investments, cash on hand and fear of inflation.

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

Rate of Increase in Value of Illinois Farmland Flattens

Mar 20, 2014

According to presentations made at the Illinois Land Values Conference, hosted by the Illinois Society of Profressional Farm Managers and Rural Appraisers, the rate of increase in the value of Illinois farmland has flattened and lower grain prices are to blame.

"Simply put, farmland earnings are important and have been the driver on prices paid for farmland over the past few years," says Dale Aupperle, AFM, ARA, Heartland Ag Group, LLC, Forsyth, IL, and overall chair of the annual Land Values and Lease Trends project managed by the Society. "Sharply lower grain prices have diminished earnings projections and put the brakes on the uptrend in farmland values."

Joining Aupperle in the presentation was Gary Schnitkey, Ph.D., University of Illinois College of Agriculture, Consumer and Environmental Sciences, Urbana, IL. He told the group that prices paid for corn are now near $4.30 per bushel. "Prices were consistently above $5.00 from 2010 through midsummer last year. Current expectations are for lower prices into 2014."

He noted that crop insurance provided farmers with a substantial amount of cash in 2012 and 2013. "Those funds are no longer coming in," he said."Experts are forecasting farmland returns to drop by up to 20 percent."

Aupperle explained that the trendline on farmland values has been upward for decades and has seen significant interruptions in the pattern three times.

He said there was a 50 percent correction in farmland values from 1980 through 1987, the period of the Farm Crisis. "This was after farmland rose nearly 500 percent from 1982. This one was a bubble."

The next period was 1998 through 2001 when there was a 15 percent correction "after an 11-year uptrend from 1997 with values rising by 92 percent," Aupperle said. "The last period was in 2008-2009. Values went sideways for a year after doubling in value from 2001."

"Perhaps history gives us some guidance for our current thought processes,"he continued. "It doesn't look like a bubble to us. A more normal time for farmland prices may be in store for the next several years. Commodity prices have led to this situation."

In presenting their summary to the group, the two cited the 2014 Illinois Land Values and Lease Trends Report. This is a composite of reports from around the state on land sales and lease trends occurring in Illinois during 2013.

They noted that all categories of farmland, determined by Productivity Increase, saw minor drops in values during the year: Aupperle explains that Excellent land was down 2 percent -- "With less land available but very willing buyers"; Good land was down 3 percent -- "Increased input costs are a concern;" Average land was down 4 percent -- "Buyers are likely to be neighbors in the community;" Fair land was down 7 percent -- "Popular category as land mix attracts residential, recreational and non-farm uses."

Aupperle said that Recreational land was steady-to-stronger across the state and there was some activity in Transitional land near the metropolitan areas.

Local farmers are still the primary buyers with estate sales leading the way in reasons for selling as well as bringing properties to the market. Public auctions (43 percent) led the list of methods of selling followed by private treaty (36 percent), sealed bid (11 percent) and multi-parcel auction (10 percent).

Cash Rents Have Stabilized
Cash Rents have stabilized, Schnitkey said. "Rents are slightly off the highs in 2013. This occurred because of the drop in commodity prices. We could be facing more cash rent declines if commodity prices are low in the fall this year.

"Assuming a price of $3.50 for a bushel of corn and $10 for a bushel of soybeans, 92 percent of our respondents expect cash rents to drop $10 or more per acre and no one expects to see rents to increase," he noted.

"We are carefully watching the influence of commodity prices, weather and yields, interest rates, net farm income, the value of the dollar, alternative investments, ethanol, and long term inflation among many other factors. Each will play a role in land values," Aupperle concluded.


Farmers National Co. Details Cash Rent Trends

Feb 20, 2014

Mike Walsten

Cash rents are seen as mostly steady in 2014, according to Farmers National Company, the large farm management and real estate firm located in Omaha, Nebraska. “Demand for high quality property is keeping both land values and rental rates strong,” says David Englund, AFM, executive vice president of farm and ranch management. “Overall, lease rates are higher on quality land if the land was rented below market in 2013, but rates across the board are mostly level. Fertilizer costs are expected to drop further in 2014, which will help farmers remain profitable.”


The desire of farm owners to expand existing operations is leading to highly aggressive sales activity and keeping the demand for farmland strong. In addition, there has been a trend of young people coming back to family farm operations prompting additional demand for land. “As a result of these factors, lease rates for land should remain steady and strong throughout the year,” says Englund.

Here are cash rent trends from Farmers National Company representatives on a regional basis:

Nebraska

Cash Rents in Nebraska for 2014 are steady compared to last year in most areas, according to Blake Florell, AFM, area vice president, Kearney, Nebraska. High quality irrigated farm ground continues to be in very strong demand, affecting lease rates. Several factors are impacting demand for this type of farmland, including excellent irrigated yields over the last several years. According to Florell yields were also strong for dry land in many areas of Eastern Nebraska in 2013.

“Competition by producers to expand farming operations, underlying land asset values and long term future optimism will keep lease rates strong into next season,” said Florell. Current cash rent lease value ranges vary in Nebraska, from $215 - $425 for irrigated land and $50 - $400 for dry land, depending on location. Cash rent values traditionally strengthen from western areas to eastern areas in Nebraska, for both dry land and irrigated ground.

Kansas

Cash rent rate levels for 2014 in Kansas remain steady in comparison with those of the previous year, according to Brock Thurman, AFM, area vice president, Kiowa, Kansas. He reports lease activity here is in line with trends across the grain belt. “Moving into 2014, projections point to steady rents on cropland, and possible slight increases in pasture rents,” says Thurman. Current cash rent lease values in Kansas range from $50 - $200 for nonirrigated land to $125 - $300 for irrigated acres.

North Dakota, South Dakota and Minnesota

Rates for cash rents have not seen substantial change during the past 12 to 15 months in this area, according to Terry Longtin, area vice president and area sales manager, Grand Forks, North Dakota. Longtin reports rates for 2014 leases are coming in with renewal rates at the same level as 2013, and will likely remain consistent for next year.“If commodity prices don’t go up over the upcoming year, I anticipate a drop in rents for this section of the country for the 2015 season,” says Longtin. Despite a slow start, interest in Cash Rent-Plus leases is growing, providing flexibility. Cash rent lease values in North Dakota range from $50 - $275 per acre, with numbers in South Dakota at $140 - $350 per acre. Cash rents range from $50 - $350 per acre in Minnesota.

Iowa

Lease activity is high in 2014 with demand very strong for all farmland classes, according to Larry Hill, AFM, area vice president, Eagle Grove, Iowa. “As with farmland sales values, the best farmland continues to demand the highest lease rates,” observes Hill. “If the farm owner has kept up with increased cash rent values over the last few years then we are calling the market in this area steady.” In some cases, farms that were not professionally managed, are showing existing lease rates as much as $100 an acre below the market. There is demand for good, improved pasture land. The area that appears to be the weakest in Iowa is poorly-drained farmland, as well as small irregular shaped fields with a high portion of non-tillable acres.

Projections into 2014 are for steady rents in this state. “A key indicator for us is that farmland values are continuing to be very strong and when you look at return on investment, we think rental rates will be stable,” said Hill. Cash rents on cropland in Iowa range from $100 - $500 per acre based on quality and location.

Illinois

Use of cash rent leases continues to increase according to Dennis Hoyt, AFM, area vice president, Quincy, Illinois. Farmers continue to grow their operations, with the result being the growing high demand for leased land. Overall, yields in 2013 were better than early season expectations resulting in positive year-end income levels. “Cash rent rates for 2014 will be steady in most cases with a few top-end rents falling back slightly, says Hoyt. “A large number of cash rent leases have moved to some form of flex type terms, and those leases are remaining steady from 2013 to 2014.” Cash rent lease values in Illinois range from $200 - $500 per acre.

Indiana and Ohio

Cash rent rates in Indiana and Ohio for 2014 are steady to higher, reports Steve Wright, area vice president, Lafayette, Indiana. Even with recent drops in commodity prices, demand for land to cash rent is still very high. “Operators are looking to amortize their machinery cost over more acres,” states Wright. In this area, Cash Rent-Plus (flex rents) have become the lease of choice by both land owners and operators. “It provides base rent with upside potential for the land owner, but only if the operator has a good year,” says Wright. Rates in Indiana and Ohio are a reflection of the Corn Belt as a whole, which saw a larger than expected crop in 2013. Producers are facing lower commodity prices, countered by lower fertilizer costs.

Moving into 2014, Wright projects rents to be steady to slightly higher with more leases moving to Cash Rent -Plus. Current cash rent lease value ranges vary in Indiana from $200 - $400 based on location, and in Ohio from $100 - $325 based on location.

Kentucky

Cash rents in Kentucky are looking very similar in 2014 to what was seen in 2013, according to Parke Carter, AFM, area vice president, Lexington, Ky. Current demand will maintain cash rent levels through 2014, despite reduced commodity prices says Carter. Variable leases are making a showing in Kentucky. In addition, crop share rental arrangements where landlords and operators split expenses are prevalent. Other trends include strong appreciation levels on long-term leases that have just been re-negotiated.

“Most rental values in 2014 should remain equal to 2013 levels,” states Carter. “However, we are seeing cases of re-negotiated long-term leases that were undervalued increasing up to 50% – 60% in some cases.” Cash rents on good cropland range from $100 - $300 per acre based on location.

Texas and Mid-South

Texas was not as greatly affected by the national recession over the past several years given its broad geographic area and diversified economic base, according to Mike Lansford, area vice president for the southern region, Fort Worth, Texas. “The drought over the past three years has greatly affected agricultural land markets, rental rates, and cattle prices,” says Lansford. “While some recovery has occurred during 2013, rainfall is the greatest, single, natural component that affects agriculture in this region, including rental rates.” As land values in this area continue to rise conservatively, so will cash rent rates, according to Lansford.

In east Texas, an area with low crop production, cultivated land is almost entirely cash leased. Dry land crop production dominates central Texas where crop share arrangements are the leasing trend. Current rates for both these areas are $25 - $35 per acre. Lease rates in southeast Texas have not changed vastly in the past 20 years, with cash lease rates currently ranging from $25 - $50 an acre for cropland. There has been a trend beginning to move away from cash leases to net share leases with a per acre minimum, notes Lansford. In the panhandle of Texas cash rent lease values range by land quality with irrigated crop land demanding $60 - $200 per acre. Cash rent lease values throughout the mid-south range from $80 - $190 per acre.

 

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

Central, Southern Plains Farmland Markets Show Signs of Cooling

Feb 14, 2014

Mike Walsten

Farmland values in the Central and Southern Plains show signs of cooling, reports the Federal Reserve Bank of Kansas City. That's based on the bank’s most recent survey of ag bankers in Kansas, western Missouri, Nebraska, Oklahoma and the Mountain States of Colorado, Wyoming and northern New Mexico.


"After several years of large increases, agricultural bankers indicated cropland value gains slowed dramatically in the fourth quarter and ranchland values declined slightly," state bank economists Nathan Kauffman and Maria Akers.


"From 2010 to 2012, non-irrigated cropland values jumped more then 6% from the third quarter to the fourth quarter of each year while irrigated cropland values surged an average of almost 7%. In contrast, cropland values rose only about 1% in the fourth quarter of 2013 despite fewer farms being for sale. Ranchland values actually dipped below third-quarter levels. Although farmland values remained higher than in 2012, the year-over-year gain was the lowest in more than three years," they state.


On an annual basis, the value of non-irrigated district cropland rose 9.2% compared to a year earlier while the value of irrigated district cropland rose 7.4%. The value of district ranchland rose 9.7% on an annual basis. Western Missouri led gains with an annual increase of 15.9% while the state also reported a rise of 16% in the value of ranchland. Kansas lists annual gains of 10.7% in non-irrigated cropland values, 7.0% in irrigated cropland and 6.2% in ranchland values. Nebraska reports year-over-year increases of 5.2% in non-irrigated cropland values, 7.1% in irrigated and 10% in ranchland values. Oklahoma lists a rise of 9.5% in non-irrigated cropland values, 8.4% in irrigated cropland and 7.8% in ranchland values. The Mountain States report a gain of 8.3% in non-irrigated cropland values, 1.0% in irrigated and 7.0% in ranchland values.


"A growing number of district bankers felt that farmland values had topped out and could retreat from current highs," report the authors. "At the end of 2012, only 1% of survey respondents expected a decline in cropland values compared to 16% at the end of 2013."

 

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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