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Land Values

Successful Farming

 By David Whitaker

3/22/2018

 

In Iowa, farmland values and sales declined slightly in January, but there was an uptick in February with a hot market. We watched land sales from all over the state come in with phenomenal figures.

A sale in Sioux County, Iowa, reached $18,360 per acre, which marks the highest selling farmland in 2018. In central Iowa, we saw most of the sales of good tillable farmland yield over $10,000 per acre with many bringing in closer to the $11,500 range. These prices deemed a successful February for farmland sales. Overall, trends are on the rise for quality farms. I always say, “Good ground sells good!”

There are more farms coming to the market in March and April as we approach planting season, and there’s new interest from investor buyers and groups that are bidding the price up at auctions. Investors are now competing against the neighbor farmer who usually is the unchallenged bidder and then ends up buying the ground. Interest in purchasing recreational ground is also on the rise. We’ve received calls from out-of-state investors who were interested in seeing recreational ground during their stay in Iowa for the Iowa Deer Classic.

MULTIGENERATIONAL INVESTMENTS

But the question on everyone’s mind seems to be, “How can land prices be so high with commodity prices so low?” Buying farmland never makes sense the day you buy it. Owning land is a multigenerational investment.

A 110-acre Delaware County farm was auctioned in November 2017 for $9,000 per acre. According to the realtor, the family purchased 120 acres in 1950 for $175 per acre, which included a house and farm outbuildings. The family sold off 10 acres, which included the farmstead about 10 years ago for an undisclosed amount. For simplicity’s sake, let’s say this was a 110-acre farm bought in 1950 for $175 per acre. Over a 67-year period, the value of this farm grew from $175 per acre to $9,000 per acre. This indicates 6.06% compounded appreciation per year. Add 3% for annual return and that equates to a little over 9% per year.

This is what land buyers want: an investment with a low amount of risk with a good return. The day this family bought this farm in 1950 they thought they paid way too much and the neighbors thought they would never pay it off. Almost seven decades later, this was likely the best investment this family ever made.

DOLLAR COST AVERAGE

Even with low commodity prices, farmland prices have remained consistently high, equating to a good return on investment with a low risk threshold.

Farmers who are buying land at these high prices are dollar cost averaging.  If a neighbor farmer buys a new 160-acre farm for the sale price of $10,000 per acre, he will average his new purchase with 300 acres he rents from his parents at a rate of $200 per acre and the 500 acres he owns. The farmer pays taxes on the land he owes for around $15 dollars per acre. The new land that was purchased was financed over 20 years at 3.75% with $100,000 down has an annual payment of $110,973.11 or $693.58 per acre. If you look at the dollar cost average all three types of farms, (owned, rented, and new land) the average is $186.43 per acre. So even though the buyer paid a price that he had to finance at nearly $700 an acre, when we dollar cost average all the land together, he is paying less than $200 per acre. The farmer also has the ability to run current equipment over more acres, which lowers the cost per acre of equipment. It also means buying more inputs, which may lower the collective cost.

It is not any easier being a farmer now than it was years ago. In fact, it’s riskier. When corn prices were at $2 per bushel, the land prices, equipment, inputs, and every other expense were relative in price. Since commodity prices had soared to $7 and then came back down to the mid-$3 range, the expenses have all remained the same, not following the commodity prices. It now takes any farmer, new or old, millions just to play the game.

Farmers need to remember that the money is made in the margins. Whether we have $3 or $7 corn or $3,000 or $10,000 farmland, farmers need to make sure that they are calculating the difference between what they put in and what they get out, especially when considering the purchase of new farmland.

 

March 21, 2018

CHICAGO — A Seventh Federal Reserve District survey found “good” farmland values increased 1 percent from a year ago after three straight years of decline.

The district represents the northern one-third of Illinois and Indiana, most of Wisconsin and all of Iowa and Michigan.

With farmland values up slightly from Jan. 1, 2017, to Jan. 1, 2018, the district avoided exceeding three consecutive years of decline seen in 1984-1986.

In the fourth quarter of 2017, Indiana, Iowa and Wisconsin had year-over-year increases in agricultural land values of 2 percent, 3 percent and 2 percent, respectively, while Illinois saw a 1 percent decrease. The district’s agricultural land values were overall the same in the fourth quarter of 2017 as in the third quarter.

“That’s indicating some stabilization in farmland values. Land values had been decreasing for three years, so an increase of 1 percent in the 2017 numbers is a bit of a change, and it’s helpful for the asset base of agriculture and the district going forward,” said David Oppedahl, Federal Reserve Bank of Chicago senior business economist.

Of the 185 survey respondents representing agricultural banks across the district, over three-fourths expected farmland values to be stable during the first quarter of 2018

Written by David Whitaker, the owner of the auction and real estate company Whitaker Marketing Group. Dubbed the “Iowa Land Guy,” Whitaker specializes in farmland auctions and also farms with his family outside Ames, Iowa. 

 

February 9, 2018

Recent Minnesota Land  Sales and Rent Prices

The Minnesota Chapter of the American Farm Managers and Rural Appraisers this week released their 2017 member report of actual cropland sales and rental transactions, with values holding steady, but not declining despite continued low commodity prices.

The survey includes data from Jan. 1, 2017, to Dec. 31, 2017, omitting “non-typical” transactions. In the state report, chapter President Adam Schmidt, of Northfield, Minn., says land prices and cash rents generally “held steady” in 2017.

“Even though the market overall was flat, it continues a trend of stronger prices for high-quality land and softer prices for more marginal land,” Schmidt says.

Most areas of the state had a third year in a row of above-average yields, “which is unprecedented,” the report says. Members tell Agweek that reporting and research methods had improved from the previous year.

Here are selected results. (Note: Mean average is the total price divided by number of sales; median average is the middle price reported among all sales.)

Northwest

Sales — The chapter’s Region 7 includes 15 counties from Kittson and Lake of the Woods to Clay and Cass counties in the south. 2017 yields ranged from strong to marginal, with 11 of the counties showed 10 or fewer transactions and six had five or fewer sales.

“Thin supply has kept sale prices of good quality land fairly stable in recent years despite commodity prices,” the regional report says.

Clay County showed 39 transactions ranging from $1,240 to $5,385 per acre — the highest mean average $3,949 and highest median average at $4,001. The trend was “slightly higher” than the 2016 report, which showed 16 transactions ranging from $2,612 to $4,911 per acre and an average of $3,762 per acre.

Norman County had 18 transactions ranging from $3,133 to $5,000, with mean average of $3,776 and median average of $3,648.

Polk County showed 26 transactions with ranging from $1,263 per acre to $5,521 per acre, with a mean average of $3,518 per acre, and median average of $4,001 per acre. The trend was “slightly lower” than 2016, when seven sales averaged $4,577 per acre.

Marshall County had 22 transactions, ranging from $949 an acre to $3,861 per acre, with mean at $2,358 and median at $2,507.

Cash rent — Cropland cash rents were highest in Clay County, ranging from $98 to $225 per acre, and “stable.” Other counties: Norman, $115 to $150 per acre and stable. Polk, $60 to $185 per acre, slightly lower; Marshall, $80 to $145, slightly lower; Kittson, $110 per acre low and high, stable.

West Central

Sales — Region 6 includes 15 counties, from Wilkin to Big Stone on the west and Mille Lacs and Sherburne in the east. The region didn’t show the number of qualified sales for each county.

Wilkin County showed a range of sales from $3,800 per acre to $6,800 per acre, but didn’t show a mean or median average.

Traverse had a range of sales from $4,500 to $6,000 per acre but only showed a mean average of $5,800 and no median.

Big Stone reported only a mean average land value of $5,000 per acre, but didn’t indicate a range.

Stevens County reported the highest mean average of $7,500 per acre for land sales but didn’t show a range or median. Stearns County land sales ranged from $2,800 to $6,900 per acre — with a mean average of $4,900 per acre and a median of $5,000 per acre.

Grant County showed a range of $4,500 to $6,900 per acre in sales. Wilkin showed a range of $3,800 to $6,800 per acre.

Cash Rent — Cropland rent trends were generally stable. Selected counties include Wilkin, $150 per acre to $200 per acre; Traverse, $150 to $200; Big Stone, $140 to $175. Highest rates were reported in Stevens, $175 per acre to $250 per acre; Grant, $150 to $225 per acre; and Stearns, $90 to $225 per acre.

Central

Sales — Region 4 includes nine counties from Swift County in the west to Nicollet in the southeast to Wright in the northeast, including the sugar beet areas in the Renville, Minn., area. Sales activity and trends were stable.

Of the selected counties, Renville County had the most activity with 34 sales, ranging from $5,200 per acre to $9,792 per acre, with mean average of $7,520 per acre and median of $7,300 per acre.

Nicollet County had eight transactions, ranging from $3,928 per acre to $8,500 per acre, a mean average of $7,000 and median average of $7,500 an acre.

Kandiyohi County had 16 transactions ranging from $3,600 per acre to $9,169 per acre, with mean average at $6,225 per acre and median at $6,185 per acre.

Cash Rent — Rent rates were “slightly lower,” with Renville County values ranging from $180 per acre to $315 per acre; Sibley County, $200 per acre to $310 per acre; and Kandiyohi, $140 per acre to $300 per acre.

Southwest

Sales — Region 1 includes 11 counties. 2017 included “early, often and excess precipitation” with “tough and delayed planting conditions.” Harvest included rain and cold. Despite that, overall corn yields ranged from 10 percent lower to 10 percent higher than the previous two years. Soybeans were 5 percent to 10 percent lower. Redwood, Cottonwood and Jackson counties reported slightly higher cropland sales prices. PIpestone, Rock and Nobles showed lower or slightly lower prices.

Rock County reported 13 sales ranging from $5,051 per acre to $14,325 per acre, for a mean average of $8,581 and median of $8,299, with stable activity but lower prices.

Nobles County had 18 sales ranging from $4,865 to $11,776, with a mean average of $7,679 and median of $7,430 per acre.

Jackson County reported 17 sales ranging from $5,086 to $9,230 per acre, and a mean of $7,586 per acre and median of $7,856.

Cash rent — All counties reported steady to slightly lower cash rents. Rock County showed lows ranging from $200 to $235 per acre and highs ranging from $235 to $325 per acre. Redwood had lows of $200 and highs of $300, as did Cottonwood County.

 

 

 

 

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