Crop prices are down, but land values are still up

I read a good article in the West Central Tribune today by Jonathan Knutson about the strange paradox of crop prices falling but rental rates and farmland values still rising.

You can follow this link to read the article online, or read some excerpts below:

 

Rental rates, cropland values still increasing

 

Crop prices have plunged, but cropland values and rental rates continue to rise, a new report says. The average rental rate for U.S. nonirrigated farmland is $130 per acre, $5 more than a year ago, and the average price of U.S. cropland is $4,100 per acre, $290 per more than a year ago, according to an annual report from the National Agricultural Statistics Service, an arm of the U.S. Department of Agriculture.

Average rental rates and cropland values rose in North Dakota, South Dakota, and Minnesota. The increases, primarily a reflection of the multi-year stretch of farm profitability that appears to have ended, aren’t surprising, says Andy Swenson, a North Dakota State University Extension Service farm management specialist.

The newly released averages are based, in part, on leases and transactions negotiated before farm profitability plunged. The recent decline in farm profitability won’t show up fully in rental rates and land values until next year, he says.

David Bau, University of Minnesota Extension ag business management educator based in Worthington, says the 2015 rental rate average might not drop much from the 2014 average. Some aggressive farmers, who hoped crop prices would remain high, had negotiated 2014 leases at high rates. Those high-end rates are likely to decline next year, pulling down the average, Bau says.

 

Bau recommends farmers and landlords consider flexible rental agreements, which increase how much farmers pay when times are good and reduce what they pay when times are poor.

In many cases, however, landlords aren’t interested in such agreements, preferring the certainty of fixed rates, Bau says.

Future farm profitability will determine the direction of farmland values and rental rates, Swenson says. Farmland values also are helped because interest rates remain extremely low, limiting the appeal of competing investments such as certificates of deposits, Swenson says.

“Farm profitability and low interest rates are the two big reasons we’ve seen this run-up,” Swenson says. “With interest rates staying this low, farmland is more attractive.”

 

Here’s what NASS found for U.S. and state-level cropland and pasture values in 2014:

U.S. — Average cropland value rose 7.6 percent to $4,100 and average pasture value rose 11.1 percent to $1,300.

Minnesota — Average cropland value rose 10.9 percent to $4,870 and average pasture value rose 1.3 percent to $1,600.

Swenson cautions that state averages can mask big price variations between counties and even within the same county.

Please let me know if you'd like any information about farmland values in our area. I'd love to help you buy or sell some farmland.

Thanks,
Noah Hultgren
320-894-7528
noah@farmlandman.com

Don't bet the farm - FedGazette Roundup

Here is a link to an interesting article about farmland values from the Federal Reserve Bank of Minneapolis:

http://minneapolisfed.typepad.com/roundup/2014/05/dont-bet-the-farm.html

It's interesting to see that farmland values in Minnesota have begun coming down, while farmland prices have been going up in all of the surrounding states. It's also a little surprising to see that cash rental prices are down in the region and 3 of the 5 states.

Have a great week,
Noah
320-894-7522

Don’t bet the farm

Posted by Joe Mahon on 05/22/2014

As fedgazette Roundup has documented before, farm values have been on an upsurge in recent years. The growth has been so steep that it has prompted discussions about whether farmland is overvalued. On the one hand, booming crop prices have increased the return on the land, reflected in higher rents. But memories of the 2007-09 financial crisis, with its origins in real estate, as well as the 1980s farm crisis, have stoked concerns of a farmland bubble.
But new data suggest a pivot, or at least a cooling period, in farmland prices, according to the Minneapolis Fed’s April survey of agricultural credit conditions for the first quarter of 2014. The survey found that prices for non-irrigated farmland fell an average of almost 2 percent across the Ninth District compared with a year earlier. While that would still leave prices well above the levels of just a few years ago, a broad-based fall in values is noteworthy.
Comparisons across the district reveal that the fall in values took place mostly in Minnesota (see map). In other district states, the price continued to increase, albeit at a slower pace than the double-digit growth typical of previous years. The survey indicated further that land rents (also shown on the map), which are more directly tied to the productive value of land, dropped by even more around the district and across a broader swath of territory.
Not every type of agricultural land has turned down either. The survey found that ranchland prices continued to climb and at a faster pace than cropland. This is especially noteworthy because the price of ranchland has typically grown more slowly than cropland during the run-up period. Livestock prices have climbed to historic highs, and a reduction in crop prices means dairy, cattle and hog producers are reaping fatter profit margins, so robust pastureland values might be expected.

- See more at: http://minneapolisfed.typepad.com/roundup/2014/05/dont-bet-the-farm.html#sthash.65785F2a.dpuf

Don’t bet the farm

Posted by Joe Mahon on 05/22/2014

- See more at: http://minneapolisfed.typepad.com/roundup/2014/05/dont-bet-the-farm.html#sthash.65785F2a.dpuf

Don’t bet the farm

Posted by Joe Mahon on 05/22/2014

- See more at: http://minneapolisfed.typepad.com/roundup/2014/05/dont-bet-the-farm.html#sthash.65785F2a.dpuf

Don’t bet the farm

Posted by Joe Mahon on 05/22/2014

- See more at: http://minneapolisfed.typepad.com/roundup/2014/05/dont-bet-the-farm.html#sthash.65785F2a.dpuf

Current Corn Crop

I just read an interesting article in the St. Cloud Times about the strength of the current corn crop, along with

Here's the article, published in the St. Cloud Times on July 3:

Minnesota corn farmers could see strong crop, good prices

Minnesota farmers are enjoying the nation's best corn crop, the U.S. Department of Agriculture said Monday. But that doesn't mean it's worry-free on the farm.

In its weekly update, USDA said 82 percent of Minnesota's corn was rated in good or excellent condition. For the nation as a whole, just 48 percent of the U.S. crop reached that threshold.

In other corn-growing states, a widening drought and scorching heat have stressed the crop, making grain markets nervous. In Chicago, corn futures rose again Monday, with the September contract rising more than 22 cents a bushel, or 3 percent. Grain prices have climbed nearly 30 percent since mid-June.

Minnesota farmers planted record corn acreage this year, so there's at least the possibility of a rare confluence of events: record acreage, a strong price, and a high yield. But this week's arrival of scorching weather, coupled with forecasts of less-than-average rainfall in July, have also brought new worries.

"In southwest Minnesota, we're starting to see the signs of moisture stress," said Liz Stahl, a crops specialist with the University of Minnesota extension in Worthington. "This week's prediction is high temperatures and not much rain in the forecast, so we'll see."

But for now, most of the Minnesota corn looks lush green and unusually tall. The average corn plant in Minnesota is now 49 inches tall, or roughly chest-high -- well beyond the adage that corn needs to be "knee-high by the 4th of July."

Said Stahl, "I was out in a field today and it's over your shoulder, so it's certainly way beyond knee-high."

Dave Nicolai, a corn specialist with the University of Minnesota, said that "the good news right now is that the crop in Minnesota looks very good."

But growers remain nervous about the heat and dry weather, especially in the next couple of weeks when the critical tasseling stage arrives.

"If we get missed by rainfall, things will go from good to stressful in a short amount of time," Nicolai said. "This story could turn around."

Because it should be another good year for crops, this should be another good year for farmland values. If you would like an appraisal or advice on when to sell your farmland, please contact me at 320-894-7528.

Warmest,
Noah Hultgren
The FarmlandMan.com
noah@farmlandman.com

Farmland Values

The number of sales happening has certainly slowed down in the last couple years, but for farmland, the values really haven't. The professional realtors at North Central Realty and myself have always worked hard to get good values for both sides of the equation, and 2010 has been no exception despite the recession.

Obviously land values vary greatly based on location and demand, and we work with a wide variety of landowners not just in Minnesota, but in Iowa, South Dakota, and other midwestern states as well. We keep track of our sales, and post some of them on our North Central Realty website. If sales in 2010 are any indication, farmland values are still going up.

In 2009, we had at least 2 farmland sales at more than $5,000 per acre - one in Renville County and another in Sibley County. We had several other properties sell for more than $4,500 per acre, including farms in Renville, McLeod, and Mower Counties in Minnesota, and Grant County, South Dakota. Just under half of the sales at North Central Realty were at $4,500 or above per acre in 2009.

So far in 2010, all of our sales have been over $5,000 per acre. This again includes farm property in Renville County, which was bought by a group of 2 farmers, as well as farms in Mitchell and Sac Counties in Iowa. If trends keep up, perhaps half or more than half of the North Central Realty farm sales in 2010 will go for over $5,000 an acre!

Please contact me to learn about our real estate services. I would be happy to help you sell your prime farmland for the best possible price!

Thanks,

Noah Hultgren

The FarmlandMan

http://www.farmlandman.com/

Spring Planting Progress

This spring has gone remarkably well for platning. I saw a communication from the beet plant the other day saying that 2010 planting is complete, which is much better than last year at this time.

I checked the USDA Agricultural Statistics Service data, and it appears that most crops are ahead of schedule as compared to last year. As of May 3, it said that 97 percent of Minnesota's sugar beet acres were planted; while just 19 percent were planted last year at this time. The five year average for sugar beets is about 44 percent through April.

Likewise, about 87 percent of corn acres were planted; as compared to only 56 percent last year and 41 percent for the five year average. Nine percent of corn is already emerged, compared to 1 percent each of the last five years.

Only about 19 percent of soybeans are planted, but that is also way ahead of schedule in comparison to the last five years. In contrast, nearly 100 percent of oats, barley, and spring wheat are already planted.

If the weather continues to cooperate, this should be a good crop year.

Farmland Values Continue to Rise

Farmland values continued to rise last year and are once again reaching all time record levels. How long will it last? Nobody has a crystal ball but there are some factors to consider.

The current top capital gains rate of 15% on most assets is the lowest it’s been for years. The Obama administration has talked about raising it to 20%, with another possible 4.5% surtax for the high tax bracket people. Couple this with a state capital gains rate of 8% and you could really see Uncle Sam take a bite out of your money!

The S&P 500 peaked at 1,565 points on October 9, 2007. Then the bear market hit and pulled it down to 676 on March 9, 2009. As of January 2010, the market recovered again to 1,138. A nice bounce back, but how long will it take to get back to even? History shows that it can take up to 5 years to make up for damage caused by downturns in the market. Where will investors park their money?

Farm net income has jumped from $48 billion to an average $64.5 billion in the last decade. While 2010 projects to be slightly below the average, it still projects to be the fifth highest amount of income produced in farming. Livestock economic conditions are expected to improve while crop producers look to stabilize.

Corn yields in Minnesota have nearly doubled since 1980 - from 100 bushels/acre to almost 170 bushels/acre. The ethanol industry has been a big part of this movement, and will look to continue by having 15% ethanol blended into regular gasoline. The country will need to produce more corn on the same (or less) amount of land.

As the value of farmland has increased, rental rates have soared. We have seen anywhere from 10-70% increases in land rental rates from 2004-2009. The law of supply and demand, commodity price and yield, farm size increases, machinery technology, and chemical application are the biggest factors.

There are many other factors that have contributed to farm land increases. For more information, go to my website at www.farmlandman.com, email me at noah@farmlandman.com or call me at 320-894-7528. We are land specialists!

Sincerely,


Noah Hultgren
The Farmland Man