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Extension > Agricultural Business Management News > February 2015

Friday, February 27, 2015

Farm Resource Guide Available

By David Bau, U of M Extension Educator

The Farm Resource Guide for 2015 is now available upon request at many University of Minnesota Extension County offices across the state. It includes a variety of very useful farm business management information. The front of the Guide has the most frequently requested information on Custom Rates, Rental Rates for various ag commodity, forages, bins and buildings, Farmland Sales and Rents and Pasture Rental rates. There are lease forms for Cash Rent and Share Rent arrangements if you order a compact disc or e-mail version. There is flexible rental arrangement information. Marketing information including the cash price probabilities for cash corn and soybeans for Worthington, Minnesota, since 1974. Information from the Southwest Farm Business Management Association includes trends in costs, family living and net worth changes. At the end of the Guide is a section on Feedlot Rule Highlights and information on Manure Agreement and Easements, including examples of Manure Spreading Lease and Land Application Agreement forms.

Included are the average cash prices for corn and soybeans to use as a benchmark along with statewide listing by county of the last five year average yields for corn and soybeans. Statewide cropland rental information is available for counties with significant farm numbers in Adult Farm Management. Farmland sales information is available for all counties across Minnesota. A second study lists bare farmland sales from 14 counties in southwest Minnesota. There are many pages of information and forms which would be of benefit to the entire state including: custom rates; lease forms; commodity price probabilities for corn, soybeans, alfalfa hay, straw, grass hay, hogs and cattle.

This Resource Guide is available for a $25 fee plus postage and sales tax if you would like to have your own copy. I can provide you the information in your preferred format: (e-mail cost $26.72, CD cost $28.50 or hard copy cost $30.00). The small $25 fee will help fund continued Extension efforts in Agricultural Business Management and will allow me to continue with the project and update the Resource Guide for 2016.

If you would like your own copy of the Farm Resource Guide, please e-mail me at bauxx003@umn.edu or give me a call at 507-372-3900 ext. 3906 and let me know what form you would like to receive the Farm Resource Guide in. I will send out the materials and an invoice as soon as possible. I hope you find the Resource Guide useful and would welcome your feedback on what you would like included in next year's Guide.


Farmland Values Decline in 2014

By David Bau, U of M Extension Educator

At the end of each year for the last twenty years, a survey has been conducted of farm land sales in fourteen southwestern Minnesota counties in which land values have been on a steadily increasing until 2014. The survey reports bare farm land sales to non-related parties for the first six months of each year. After reaching record high prices in 2013, the upward trend was broken as prices declined in 2014. Data collected in this survey is available at the county extension offices in Chippewa, Cottonwood, Jackson, Lac qui Parle, Lincoln, Lyon, Martin, Murray, Nobles, Pipestone, Redwood, Rock, Watonwan and Yellow Medicine Counties. This year the decline across the fourteen counties averaged 10.1%. Average land values had not declined since 1996 when the average SW Minnesota land prices were $1,175 per acre in 1995 to a high in 2013 to $8,466.

Data from these counties indicate prices decreased from an average of $8,466 in 2013 to $7,556 in 2014 or an decrease of 10.1%. This is the first percent decrease as far back as this data has been collect since 1995. In 2013 was the largest year to year increase of 35.6%. Farm land prices decreased in the fourteen counties and from an overall average of $8,466 per acre in 2013 to an average of $7,556 in 2014. There was a lot of variability in the numbers from 2013 to 2014. The largest increase was in Redwood County with an increase of 9.2% while Lac qui Parle County experienced the largest decrease of 26.7% for the sales that met the bare farmland to non-related party transaction.

Twelve of the counties experienced a decline in farm land values in 2014 from 2013. Rock County had the highest average sale price of $9,353 per acre and Lac qui Parle the lowest at $4,251 per acre. The average Crop Equivalency Rating (CER) for the fourteen counties was 68 with the highest price per CER in Lyon County at $123.63 and the lowest in Lac qui Parle County at $77.11 per CER. The assessed values for the first time were higher than actual sales price with the assessed value at 102 percent of the sales price. Historically the assessed value would be 75 to 80 percent of the sales value. Eight counties experienced average sales prices that were lower than the assessed values in 2014. While six counties experienced average sales prices that were more than the average assessed values, the highest percentage was 92% in Watonwan County.

Each year sales vary within a county and be closer to a larger city which would have an effect on these average values from year to year. The quality of the land sold within a county may be a factor in the wide swings in the prices from year to year in individual counties. The number of sales in each county varies greatly from year to year. The 10.1% decrease is well below historical increases of 1 to 2 percent. For the last ten years there have been large percentage increases. In the previous eight year prices increased at an annual rate of 15.3%. There are several factors that have an effect on land values. Farm incomes, grain prices, interest rates, return on other investments and 1031 exchanges are often mentioned as reasons for the increase. Farm profits were weaker in 2013 and will decline further in 2014 with lower commodity prices. There were three consecutive years with record farm profits in the Southwest Minnesota Adult Farm Management program, from 2005 through 2007. In 2008 and 2009 profits were good, but not at record levels, 2010, 2011 and 2012 were record levels. In 2013 half the farms in adult farm management in Southern Minnesota lost money on corn production. This loss will increase for 2014. Many hog and dairy producers experienced a tough year in 2010 many with losses instead of profits with poor prices for their commodities and high feed costs. In 2014 lower commodity prices and higher livestock prices will have a positive effect on livestock producer profits.

If the average farmer had a loss in 2013 and this trend continues in 2014, this would soften local demand for the land from farmers. Interest rates continue at historically low levels and land rental income is comparable or higher than what an investor can earn from treasury bills, bonds or certificates of deposit at financial institutions. The stock has market rebounded significantly since its low in March of 2009 to record levels at the end of 2014. The 1031 exchange is for farmers or property owners who have land in an area of increased value due to location to city or development and rather then pay taxes on large gains from the sale of land they purchase like property or other farmland at a more reasonable price elsewhere, which increases rural farmland demand.

The reason for increases or decreases in farm land sales prices is a combination of all of these factors. If you would like a copy of the two page document on the trends in farm land sale prices, contact your local county Extension office at any of the fourteen counties listed above.

Which direction will farm land values go depend on several factors? Supply and demand will determine this. The simple return on investment which is determined by rental rates will determine how competitive farm land is compared to other investments and this will determine a value for farm land. Corn and soybean prices for 2015 crop are much lower than previous years. This should have an impact on profits, farm rental rates and eventually farmland values. The government programs have an influence as well through the farm bill. If interest rates rise or farm rental rates fall, the value of land is sure to be affected in a negative way and that will cause a decrease in land values. The table below indicates average land prices from 2010 to 2014.

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Trends for Southwest Minnesota Farmland Rental Rates

By David Bau, U of M Extension Educator

What are the trends in farmland rental rates and where are they going in 2015? I have just completed 45 workshops across the state and asked this question multiple times to each audience. What direction should rents go in 2015? I had three possible answers, they could stay the same, they could go up or they could go down. How you answer this depends on your circumstances.

Many farmers are looking at losses in 2015 for both corn and soybeans, but need to maintain their current farm size and are going to pay the same rate as last year even if it creates a loss at current prices hoping commodity prices will rise. Below is a table showing farmland rental rates in southwest Minnesota. In the FINBIN data base for the last five years from 2009 to 2013 rental rates have increased at a yearly rate of 11.8 percent. Commodity prices started declining from record highs in 2012 and continued lower in 2013 and 2014. The table includes half of this average increase or 5.9 percent to get the estimate for 2014 average county rental rates. For 2015, commodity prices continue lower. In the table a 2.95 percent increase was applied to 2014 rates to get an estimate for 2015 farmland rental rates.

Table.png

There will be pressure for higher farmland rental rates to go down in 2015 due to the steep decline in corn prices and lower a smaller decline in soybean prices. As I traveled the state, four counties had conducted farmland rental surveys and in each county rents declined in 2015 from 2014. One county declined by 7.7%, another 8.9%, another $9 per acre and another from an average of $290 in 2014 to $264 average for 2015.

Can farmland rents continue the increasing trend in 2015? The projected 2015 corn and soybean total income and expenses would indicate a loss at current cash forward contract prices available using historic yields and 2014 rents and expenses. This could cause lower or flat farmland rental rates in 2015 as compared to 2014. To find more rental information go to University of Minnesota Extension's home page www.extension.umn.edu, click on "Agriculture" Icon, then "Agricultural Business Management" and then click "Land Economics" Icon. Here you will find a wealth of information.


Where to Find Information for Farmland Rental Rates

By David Bau, U of M Extension Educator

What are the trends in farmland rental rates and where are they going in 2015? There is new improved extension website to find relevant information. Start by going to University of Minnesota Extension's home page http://www.extension.umn.edu/, click on "Agriculture" Icon, then "Agricultural Business Management" and then click "Land Economics" Icon. Here you will find a wealth of information including:

• FairRent, a software program where farmers and landlords can enter potential crops to be raised, expected input costs and market prices along with insurance coverage and then will help determine what would be a fair rent.

• "Cropland Rental Rates for Minnesota Counties" publication prepared by Gary Hachfeld, William Lazarus, Dale Nordquist, and Rann Loppnow utilizing the FINBIN data base with historic information from an adult farm management data base can be found here.

• Minnesota corn and soybean budgets for 2015 and 2014, utilizing the FINBIN data base.

• Average Cropland Rental Rates with projections for 2014 and 2015 from FINBIN data base.

• 2015 and 2014 Minnesota cropland and pasture rental rates come from the Minnesota Agricultural Statistic Service publication on cash rent which is released in September each year.

• Flexible land rental agreement information can help to share the risk and reward between the farmer and the landlord.

• Southwest Minnesota Crop Budgets for 2015 and 2014 provide examples of input costs.

• Ag Lease 101 is a link to vast amount of information about rental agreements and lease forms you can fill out online.

• Minnesota land economics link is a one stop source for land data in Minnesota.

• Cropland rental rates for Minnesota counties, lists rental rates paid by farmers over the past five years by county using FINBIN database.

• 2015 & 2014 Operator's cash rent worksheet are Excel worksheets for farmers to calculate what they can afford to pay for rent.

• 2015 & 2014 Landowner's rent worksheet is for landlords to use to calculate what they want for rent based on land values.

• Southwest Minnesota farmland sales 2002-2012 lists Land Sales for bare farmland in southwest Minnesota to Non-Related parties from 2002 through 2012.

Can farmland rents continue the increasing trend in 2015? The projected 2015 corn and soybean total income and expenses would indicate a loss at current cash forward contract prices available using historic yields and 2014 rents. If prices increase or farmers are able to get better yields in 2015 than projected, it would be possible to pay these trending higher rental rates, but based on the current corn and soybean prices for 2015, there is a real potential for farmers to lose money. If this occurs, it should cause lower or flat farmland rental rates in 2015 as compared to 2014.


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