The rapid rise in farm land values in Minnesota and other areas of the Upper Midwest are discussed quite often by farmers and other rural residents across the region.
Many times the extremely high value land sales generate most of the discussion. Of course, there are many other land transactions that take place throughout the year that are recorded at county offices, but are not usually made public. When looking at trends in land values, it is important to look at all of land sales data.
Based on a University of Minnesota analysis of the average county assessor’s value of tillable farm land in eight south central Minnesota counties, the average value on Sept. 30, 2011 was $5,086 per tillable acre. This is an increase of only 4 percent from the average land value of $4,877 per tillable acre on Sept. 30, 2010, but represents an increase of 48 percent compared to the average farm land value in the region on Sept. 30, 2007.
Farm land values reported by county assessors tend to lag slightly behind actual trends in land sales, due to the timeline required to report final land sales, and the timing of the county data. However, there is a definite trend of significant increases in farm land values in all counties in the region during past five years, and the upward trend in farmland values has continued since Sept.30, 2011.
Land sales across the entire region have been very strong in recent months, with many reported sales for high quality farmland in the $7,000 to $9,000 per acre range, or higher.
The Federal Reserve Bank reported a 28 percent increase in the Minnesota land values at the end of 2011, compared to a year earlier, with an 8.2 percent increase in the third quarter of 2011 alone. Most private land companies reported land sales prices at 15-20 percent higher at the end of 2011, compared to a year earlier.
A survey of land managers in southern and western Minnesota at the end of 2011 showed that well over half of those surveyed felt that the average farmland value was $6,000-$7,999 for high quality land, with less than one-third of respondents indicating less than $4,000 per acre.
Iowa State University also does a land value survey each December, which is usually quite revealing on trends in farm land sales. In December, 2011, the average value per acre of Iowa farmland was listed at $6,708 per acre, an increase of $1,644 per acre, or 32.5 percent, from December, 2010. This was the highest annual percentage increase since Iowa State started the land value survey in 1950, with the previous high being 31.9 percent in 1973. Average Iowa land values in 1973 were $635 per acre.
Since 2004, the annual average farmland values in Iowa have increased by a double digit percentage from one year to the next in every year except 2009, when there was a slight decrease. The average Iowa farmland values at the end of 2011 became the highest of all-time on an “inflation adjusted” basis as well, topping the previous high land value set in 1979. Northwest Iowa had the highest average land values at the end of 2011, with an average of $8,338 per acre.
According to most farm real estate experts, there is a big difference in land quality with regards to current trends in farmland values in south central Minnesota. It is not unusual to hear land sales of $7,000 or more per acre for tillable land with top quality soils and good to excellent tile drainage.
However, poorer quality land in the same area, with lighter, more sandy-type soils, or with medium to poor tile drainage, may only be selling for only $4,000 to $6,000 per acre, or less.
Similarly, the 2011 Iowa State University Study found that average land values for high quality land was $8,198 per acre, compared to $6,256 per acre for medium quality land, and $4,257 per acre for low quality land.
One of the best sources of farm real estate values in Minnesota is the U of M’s “Land Economics” web site at: http://www.landeconomics.umn.edu. This web site is updated annually after Sept. 30, and accesses a data base of various land values, based on farm land valuations reported to the State Revenue Office by county assessor offices throughout the state each year, which are adjusted annually based on actual land sales in a given county. This web site allows for selected sorts by county, state economic regions, watersheds, etc., as well as by types of land.
What about future land values?
There are plenty of reasons to be optimistic about continued strength in future farm real estate values, especially on a short-term basis. Farmers are poised to have another profitable year in 2012, which should create continued interest in land purchases.
Long-term interest rates remain quite low and demand is quite strong for medium to high quality farm land in most areas. Total volume of land sales was down in 2011 compared to previous years. Rapid increases in cash rental rates for farmland have also made purchasing land more viable compared to renting additional land.
On the “flip side”, there are also reasons to be more pessimistic about the future farmland values, especially beyond the next 12 months. The prospects for corn and soybean prices later in 2012 and beyond appear much more questionable, crop input costs are fairly high, and profit margins in corn and soybean production are likely to get much tighter in the next few years.
These economic challenges in the farm sector are likely to cause farm operators to become much more conservative on land purchases, compared to recent years. There is also potential for higher long-term real estate interest rates in the future, along with an increase in the amount of land being offered for sale, both of which could soften future demand for farm land.