Date: December 7, 2012

Extension Regional Office 1527 Prairie Drive Worthington MN 56187 Phone: 507-372-3906 Fax: 507-372-3911 Email: bauxx003@umn.edu

Visiting With Your Regional Extension Educator

By David Bau, Extension Educator University of Minnesota Extension Service Farmland values continue to increase in 2012 At the end of each year for the last eighteen years, a survey has been conducted for 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. After the crash in farm land values from record high prices in the 1980s, farmland values continue to rise and are reaching all time record levels. 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 increase across the fourteen counties averaged 33.2%. Data from these counties indicated prices increased from an average of $4,687 in 2011 to $6,245 in 2012 or an increase of 33.2 percent. This increase is larger than last years 19.8 percent increase when farm land prices increased in the fourteen counties and from an overall average of $3,913 per acre in 2010 to an average of $4,687 in 2011. There was a lot of variability in the numbers from 2011 to 2012. The largest increase was in Martin County with an increase of 85.4% while Jackson County experienced a decline of 7.3% for the sales that met the bare farmland to non-related party transaction. Only Jackson County experienced a decline in farm land values in 2012 from 2011. While the other counties increased from 3.0% in Lac qui Parle County to 85.4% in Martin County. Rock County had the highest average sale price of $7,839 per acre and Lac qui Parle the lowest at $4,174 per acre. The average Crop Equivalency Rating (CER) for the fourteen counties was 67 with the highest price per CER in Redwood County at $108.68 and the lowest in Lincoln County at $72.08 per CER. The assessed values did not keep up with the higher actual sales price. Historically the assessed value would be 75 to 80 percent of the sales value. This year the average for the fourteen counties declined to 75.5 percent from 77.58 percent in 2011. In 2012 all counties experienced average sales prices that were more than the average assessed values, the highest percentage was 85% in Lincoln, Lyon and Yellow Medicine Counties. Each year sales can 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 33.2% increase is well above historical increases of 1 to 2 percent. For the last ten years there have been large percentage increases. In 2009, there was lowest increase at 0.8% while 2010 was the next lowest at 4.8% while the high of 33.2% was this year. There are several factors that have an effect on land values. Farm income, grain prices, interest rates, return on other investments and 1031 exchanges are often mentioned as reasons for the increase. Farm profits continued to be good in 2012. 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 and 2011 were better and 2012 will probably continue this trend of good farm profits with better good corn and soybeans yields than expected with dry summer and record prices. 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 2012 high commodity prices will again have a negative effect on livestock producer profits. If the average farmer is profitable, this would add local demand for the land from farmers. Interest rates continue at historically low levels and land rental income is comparable or larger than what an investor can earn from treasury bills, bonds or a certificate of deposit at financial institutions. The stock has market rebounded significantly since its low in March of 2009 but was up and down in 2012. 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 aftershock of the recession and the real estate market has slowed this impact in 2012. The reason for the increase in farm land sales prices is a combination of all of these factors. If you would like a copy of 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. How high can farm land values go? 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. The government programs have an influence as well. 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, but as long as these factors do not occur, the price of farmland will continue to climb.