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

Domestic oil drilling isn’t stopping the annual summer gas price hike

Here's an interesting article from Minnesota Cornerstone about rising gas prices despite record levels of domestic oil drilling:

As we drill for more oil than ever before in the United States, gas prices are going up.

Yes, it’s that time of year again. The snow is melting, temperatures are rising, families are making summer vacation plans, people are driving more, and (conveniently) gas prices are spiking.

“Hold on a minute,” you might be saying. “We’re in the midst of a domestic oil boom. I thought that was supposed to lower gas prices?”

Despite messages you might hear from Big Oil companies (often delivered through their friends in Washington D.C. and the media), increased domestic drilling will not save you money at the pump.

According to this story from the Wall St. Journal, U.S. gasoline stockpiles are at their lowest for this time of year since 2011, which is driving up prices. Why are gas stockpiles low and prices up if we’re drilling for more oil here at home?

Because oil companies are exporting gas to other countries, creating a shortage in the U.S. and driving up prices again. From the Wall St. Journal story:

 …the retail price for a gallon of regular gasoline averaged $3.68 on Monday, up 4.2% from a year ago, according to the EIA. That is the highest price since March 2013. AAA had the average price on Monday at $3.67…Total petroleum exports, mostly gasoline and diesel, averaged about 3.6 million barrels a day last week, according to the EIA, up 25% from the same period last year.

So instead of delivering on the promise of lower gas prices with increased domestic drilling, Big Oil is just exporting more gas and once again inflating gas prices as families prepare to hit the road for a summer getaway.

It would have been nice if the Wall St. Journal provided some information and context in the story about the role homegrown ethanol and biofuels play in cutting prices at the pump. Or how now is not the time to slash the Renewable Fuel Standard and reduce the amount of ethanol blended in American gasoline.

Unfortunately, the Wall St. Journal is notorious for it’s blind hatred of ethanol, and is one of the main publications Big Oil counts on to spread misinformation and parrot talking points about American farmers and biofuels.

If you’re looking to save a few bucks at the pump on your family vacation this summer, fill up with higher blends of ethanol. There is a promotion in West Central Minnesota that prices E85 (a blend of 85 percent ethanol and 15 percent gasoline) at least $1 less than gasoline. Higher blends like E15 and E30 are now available in the Twin Cities.

You can get more details on where to buy higher ethanol blends in Minnesota at the American Lung Association of Minnesota’s Clean Air Choice page.