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Trends in Farmland Sales, Rental Rates and Net Farm Incomes

By David Bau, Extension Educator

Recently I was asked to compare trends in Southwestern Minnesota Land Sales to average Farmland Rental Rates and SW Adult Farm Management average Net Farm Income for corn and soybeans. I was able to go back to 1993 for all three trends. The average farmland sales price is from nine counties in SW Minnesota including: Cottonwood, Jackson, Lincoln, Martin, Murray, Nobles, Pipestone, Rock and Watonwan Counties. The average rental rates come from average rents paid by farmers in the SW Adult Farm Management program. The average net income for corn and beans included government payments and was also from SW Minnesota Adult Farm Management program. Chart 1 below show the trends for Farmland Sales, Rental Rates and Net Farm Income for corn and soybeans from 1993 through 2014.

Chart 1. Comparison of SW Minnesota Average Farmland Sale Price verses Rents and Net Income

The trend line for average farmland sale prices, represented by squares on chart, starts close to $1,000 per acre in 1993.  Prices gradually increased through 2003 with slight declines in 1996 and 2000, before increasing more dramatically from 2004 through 2008. Then had slower years in 2009 and 2010 before increasing at even a faster pace from 2011 through 2013 to a high average price of $8,929 in 2013 before declining in 2014 to $7,363. The sale prices are based on the left vertical axis.

The next line uses triangles representing the average net income average per acre for corn and soybeans in Southwestern Minnesota Adult Management. This line uses the right vertical axis begins in negative territory in 1993, corn net income per acre at -$27.95 and Soybeans at -$25.43 for an average loss for net farm income of -$26.69. Average corn and soybean net farm income was much more variable than the other two lines. Net incomes was negative in 2004 then turned positive net incomes from 2005 to 2013 before falling dramatically in 2014 to a negative average net farm income of -$29.22 per acre.

The diamond shapes on the third line represent average rents in Southern Minnesota, which started 1993 at just under $70 per acre and increased through 2013 reaching a high of $243 and the declining to $241 in 2014. The average rents did decline slightly in 1999 and again in 2001.

Comparing the three lines you can see the relationship between corn and soybean net income, farmland rental rates and farmland sale prices. While farmland increased at a gradual pace from 1993 through 2006, they increase more drastically through 2010 and then took off again from 2011 through 2013. Average Net Income for corn and soybeans, had three years in negative territory 1993, 2001 and 2014. Net Income was below $55 per acre prior to 2003 and was again in 2004 while the other years varied, but at significantly higher income levels. The lines cross in 2012 and 2013 after three year of declining net income, average farmland sales prices moved higher and cross the average farmland rental rates line. Net Farm Income has continued to decline since while average farmland rental rates and average farmland sale prices both began to decline in 2014. 

If the net income continued in negative territory in 2015, which the numbers will come out later this month, you would expect land prices to move lower and below the average farmland rent line which should also decline in 2015. With 2016 corn and soybean budgets projected negative at current prices the trends for rents and land sales to continue lower in 2016. 

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