Bushels of Profits: Most Precious Asset Reflects Profitability Best

April 1, 2014 09:27 PM
Bushels of Profits: Most Precious Asset Reflects Profitability Best


It’s been a strange few years in the business of crop production. Farming is never easy. However, the ability of producers to absorb production issues with record or near-record net farm income certainly eased the burn of the 2012 drought and kept balance sheets above water in 2013, even as fields flooded.

With the income surge came an increase in the value of farming’s most precious asset—land. 

The climb in land prices started with the 2007/08 grain rally, pushed through the lower crop prices (high yields) for the 2009 crop and accelerated from 2010 into mid-2013. Then the air came out of the land rally. In the fourth quarter of 2013, Iowa land values softened compared with the year earlier, and the slide in land values continued into the first quarter of 2014.

"The greatest pressure on good farmland occurred at auctions in the last quarter of 2013 and the first quarter of this year," says Mike Walsten, editor of LandOwner newsletter. "Auction values in Iowa and southeastern Minnesota were off 20% to 25% from a year ago for good farmland. Private-treaty sales, however, saw much less pressure with values off 5% to 10% from a year ago."

Now there seems to be some stability climbing back into the land market. "By mid-February, auction prices were stabilizing," Walsten says. "There’s no question that had something to do with the simple fact that grain prices stopped going down and turned back to the upside. With higher grain prices comes a more optimistic outlook for 2014 profitability, and that’s being bid into land values."

Over time, land values will accur­ately reflect profitability in farming. That’s why clues to the future profitability of farming can be taken straight from land auctions and private-treaty sales across the country.

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Land auctions and private bids for farmland have begun to stabilize since mid-February 2014. This supports the premise that land values, over time, accurately reflect profitability in agriculture.  Source: usda–ERS




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