In terms of average value per acre, Iowa also was the highest ($8,000 per acre), followed by Illinois ($7,450) and Indiana ($7,000). The lowest values were in the Northern Plains states of Wyoming ($1,370), North Dakota ($2,000), South Dakota ($3,520), and Arkansas ($2,710). PASTURELAND VALUES Arkansas (+7.0 percent) experienced the largest percentage increase, followed by Nebraska (+4.6 percent) and South Dakota (+4.1 percent). As with cropland, states with a strong recreational and urban expansion component tended to do better than others. Also, states with a strong dairy (Wisconsin and South Dakota) and beef industry (Nebraska) presence tended to do better. Illinois (-4.2 percent) had the largest percentage decrease, followed by Michigan (-3.0 percent) and Minnesota (-2.9 percent). In absolute dollar terms; Arkansas (+$160) had the largest increase. In terms of average value per acre, Tennessee was the highest ($3,540), followed by Iowa ($3,400), Illinois ($3,400), and Ohio ($3,100). CASH RENTS: DECLINES FOR BOTH CROPLAND, PASTURELAND
CROPLAND VALUES The Northern Plains states experienced the largest declines in cropland values from 2015 to 2016, while the southeastern states in the AgriBank district and Wisconsin experienced growth. Wisconsin (+$200) had the largest increase (with its strong dairy industry being a contributing factor) and, along with Arkansas, Kentucky, and Tennessee, most likely saw an increase in cropland values due to the strong recreational and urban expansion components in their land markets. Also, the diversity of crop production in these states continues to support values, while states that have cropland concentrated in corn and soybean production (such as Iowa and Illinois) have seen values decline with the lower price levels for both crops.
Cash rental rates typically lag land values by a year or more, but the USDA data indicate rates are coming down. Of note are cropland cash rents declining for the first time in over 20 years, with the district average of $143.47, representing an average decline of $9.82 per acre (or a decline of 6.4 percent). This should be good news for crop producers who rent land, since cash rents are a major component of production costs for most crops. Pastureland rental rates also moved lower, as prices for both dairy and feeder cattle have declined over the past year from their recent record highs.
of borrowers, are expected to slow the adjustments taking place in land values. As has been consistently determined over the past several years, the U.S. farm sector remains strong, despite moderating commodity prices that result in lower net farm incomes. While many key industry barometers reveal a fall from record highs, producers are experiencing a range of market conditions. For example, grain and oilseed commodity prices have moved down significantly from several years ago, which is negative for crop producers but positive for commodity users (at least in the short run). And, for land values, market correction has begun, but some areas still show increases in land values. How can producers navigate this “agriculture efficiency cycle” in which declining net farm income means producers must bring income and expenses in line? Absent rising commodity prices, the solution for many producers is to drive a higher level of efficiency into operations, which can reduce the cost per unit of production. This may include selling unproductive equipment, land or other assets. It may also include negotiating reduced costs for: • Debt payment structures • Family living • Machinery costs • Real estate rental rates • Seed genetics
WHAT’S NEXT?
Meanwhile, producers can expect lenders to engage in disciplined real estate lending practices such as debt caps per acre and percentage loan-to-average-value standards (typically 65 percent for Farm Credit lenders). These practices are designed to help borrowers and lenders alike operate prudently through current and expected market conditions.
The outlook for many producers looks challenging for the next five years with most forecasters projecting corn and soybean prices to continue to stay at or near break-even levels on average. Producers may benefit from USDA commodity title programs that, under the 2014 Farm Bill, could be triggered by lower commodity prices. These programs, combined with disciplined risk management practices and the still generally strong financial condition
The 2016 USDA land value and cash rent data continue to support a “soft landing” in agricultural land values. The 1.0 percent average decline in 2016 cropland values is far short of the average annual declines of 7 to 8 percent during the farm crisis years of 1982 to 1987. While some farming operations may face unique financial challenges in this environment, others may find themselves in a position to take advantage of unique opportunities. ■
Partners — Winter 2017
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