By David Bau
At the end of each year for the last twenty-four years, a survey has been conducted of farm land sales in fourteen southwestern Minnesota counties. The survey reports bare farm land sales to non-related parties for the first six months of each year. Land values had been steadily increasing until 2014. After reaching record high prices in 2013, the upward trend was broken as prices declined in 2014 and continued down through 2017. The trend changed to an increased in 2018. The summary report for 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 increase across the fourteen counties averaged 3.9%. Average land values had not increased since 2013 when the average SW Minnesota land prices peaked at $8,466 per acre then declined in through 2017 to $6,340 until increasing in 2018 to $6,589.
Data from these counties indicate prices increased from an average of $6,340 in 2017 to $6,589 in 2018 or an increase of 3.9%. In 2013 was the largest year to year increase of 35.6%. Farmland prices decreased in six counties and while increased in eight counties including Cottonwood, Lincoln. Murray, Nobles, Pipestone, Redwood, Rock, and Watonwan from 2017 to 2018. There was a lot of variability in the numbers from 2017 to 2018. The largest increase was in Lincoln with an increase of 20.3% while Lyon experienced the largest decrease of 11.5% for the sales that met the bare farmland to non-related party transaction requirements.
Rock County had the highest average sale price of $8,656 per acre and Lac qui Parle the lowest at $5,105 per acre. The average Crop Equivalency Rating (CER) for the fourteen counties was 68 with the highest price per CER in Chippewa County at $102.78 and the lowest in Lincoln County at $78.24 per CER. The assessed values were lower than actual sales price with the assessed value at 95 percent of the sales price. Historically the assessed value would be 75 to 80 percent of the sales value. Five counties experienced average sales prices that were lower than the assessed values in 2018. While nine counties experienced average sales prices that were more than the average assessed values, the lowest percentage was 82.43% in Pipestone County.
Each year sales vary within a county and be closer to a larger city which could 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 3.9% increase is above historical increases of 1 to 2 percent. For the last ten years there have been large percentage increases. In the eight years before 2014, prices increased at an annual rate of 15.3%. But from 2014 to present the average change has been 4.8% decline. 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 turned negative in since 2014 with lower commodity prices. There were good to record profits in the Southwest Minnesota Adult Farm Management program, from 2005 through 2012. During 2013, half the farms in adult farm management in Southern Minnesota lost money on corn production. These losses have continued through 2017. 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.
If the average farmer had losses from 2014 through 2018, this would soften local demand for the land from farmers. Interest rates have started to slowly increase 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 market declined in 2018. 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 the 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 2019 crop are still at lower levels 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 2013 to 2018.