Three states could see farmland value increase
SIOUX FALLS, SD (KELO) – Multiple buyers, low interest rates and shortage of goods.
It sounds like a description of the housing market, but it is not.
It is the expected farmland market in South Dakota, Northwestern Iowa, and Southwestern Minnesota.
The 2020 farm values reported for each of these three states may not reflect a highly competitive market driving up land prices because, in part, there were factors driving down values, at least in South Dakota and the United States. southwestern Minnesota.
Tri-state extension services publish reports on farmland values for 2020. Values declined in South Dakota and southwestern Minnesota, but increased in Iowa.
“When we responded to our survey for 2020, things were pretty negative,” said Jack Davis, agricultural business management field specialist for South Dakota State University Extension. “Interest rates were skyrocketing. And the prices of the crops hadn’t really gone up that much. Margins were tight and working capital was (very) tight.
Iowa State University Extension released its report in December. South Dakota released its July report, and the University of Minnesota Extension released the Southwest Minnesota report in February. The three reports are a snapshot in time. They include the selling prices of agricultural land and may also include producer survey information. The reports caution owners of farmland against comparisons with their own land.
The average value of farmland in South Dakota was $ 3,638 an acre in 2020, according to a report from the South Dakota State University Extension.
The average value in 14 counties in southwestern Minnesota was $ 6,371, according to the University of Minnesota Extension. The region includes Nobles, Rock, Pipestone, Lincoln and 10 other counties.
“Some increased last year even though they decreased slightly,” said David Bau, a special education educator in Minnesota.
The average value of farmland in Northwestern Iowa was $ 9,536 an acre. The value of Iowa includes all qualities of cropland, according to the Iowa State Extension.
But the factors influencing some lower values described by Davis have changed in 2020 and 2021.
Farmers made more money than expected in 2020 thanks to increased crop prices and government programs linked to the coronavirus pandemic. And interest rates have come down.
After successive years of losing money on some crops, farmers made money in 2020, Bau said
The USDA predicted that farm income would increase by $ 24.7 billion in 2020 compared to 2019.
Increases in crop prices have also helped to increase income.
For example, Bau said on April 6 that the futures price per bushel of soybeans was $ 8.08 per bushel in April 2020. As of April 6, 2021, that price was $ 12.78 per bushel.
A future price is one that a farmer can set to sell a certain number of bushels of soybeans from his future crop.
“It’s crazy how much a year makes a difference,” Bau said of crop prices.
In Iowa, where an increase in the value of farmland has been reported for 2020, the positive impact of several factors has already been noted. The ISUE report said: “The recent modest increase in the Iowa farmland market is the result of lower interest rates, substantial government payments, high demand and supply of land. limited land. “
Farmland is sold in acre numbers ranging from 60 acres to 160 acres to 500 acres or more. So at $ 3,000 an acre for 160 acres, that’s $ 480,000. If the buyer pays $ 6,000 an acre, that’s $ 960,000. If it’s $ 9,000 an acre, that’s $ 1.4 million.
When the principal and the interest rate are added, a low interest rate on these sale prices makes a difference.
“Just like the housing market, with low interest rates, homes will also sell for higher prices. It really is the most important factor for the value of land (farms) too, ”said Davis.
Who sells, buys the land?
Realtors can talk about six or 10 offers on a home, but farmland value reports don’t show such numbers.
Bau and Davis said there is a demand for high quality farmland because the supply is not large.
“The limited supply of farmland has helped support market prices in many parts of the state,” the UIS report said.
“It’s the amount of land that is totally available. If there’s no reason to sell it and the rents hold up, people kind of hang on to it. Then there isn’t a lot of good quality land supply for those who are interested in expanding, ”Davis said.
The offer helped maintain land values in 2020 in South Dakota, Davis said. In the early 2000s, land values did not drop as much as in the 1980s because there was no offer for the sale of good properties, Davis said.
“A farmer himself usually doesn’t sell until he has (because of) the economy,” Bau said.
Some farmland owners may choose to keep their land because they may receive a good rental price, Davis said. The farm continues to generate annuity income.
This land could be owned by a retired farmer or an investor.
Often farmland is for sale when the heirs of a deceased farmer have decided to sell it, Bau said.
Davis said a farmer may decide to sell some of his land to help with retirement.
“This tends to farmers who buy the majority,” Davis said. “Most of this money is bought for farm expansion, or for someone to start up or to bring someone in. “
“This farm across from you is for sale tomorrow will not be for sale in your generation,” said Bau. “In your lifetime, it goes on sale once in a generation. You’re not going to look back and say “oh, that’s a bad decision to buy” because it’s the only chance (you) had. “
“The majority of farmland sales, 72%, were to existing farmers, including 69% of existing local farmers,” the ISUE report on All Farmland Sales in 2020 in Iowa states. “Only 3% of sales were made to existing farmers who are moving. Investors represented 22% of land sales. New farmers accounted for 4% of sales and other buyers 2% of sales.
How and why do people buy farmland for $ 1 million?
“A lot of land purchases are not paid for in cash,” Bau said.
A farmer can farm land he has no debt or low debt on to help pay for the land, Bau said.
Agricultural land has historically increased in value. There may be drops, but Bau said in his area the value has increased by 1-2% per year.
Farmland is a good investment because it retains and increases in value, said Davis and Bau.
Bau and Davis both said farmland prices are expected to increase in their areas in 2021. Figures that were not available for their 2020 surveys are also expected to show an increase for later in 2020, they said.
“I think the current trend is probably upwards. Because of the economy of the farmers, they had more income last year, more money on the balance sheet… ”said Bau.
The low margins created by falling crop prices or increasing production costs could be two negative impacts on farmland values, Davis said.
The ISUE report said that while farmland values in 2020 showed value to be resilient during the pandemic as sales arrive this year, “… more stressed sales from financially stressed producers.