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.