Farm land values continued to rise last year and are once again reaching all time record levels, according to an annual survey on bare farm land sales. However, the recent increase across the fourteen Minnesota counties surveyed was only 0.8 percent.
All counties surveyed are in southwestern Minnesota. Surveyed counties include: Chippewa, Cottonwood, Jackson, Lac qui Parle, Lincoln, Lyon, Martin, Murray, Nobles, Pipestone, Redwood, Rock, Watonwan and Yellow Medicine.
Data from these counties indicated prices increased from an average of 3,702 in 2008 to $3,733 in 2009, or an increase of 0.8 percent. This increase is significantly smaller than last year's 30 percent increase. There was a lot of variability from 2008 to 2009. The largest increase was in Lac qui Parle County with an increase of 26.8 percent while Cottonwood County experienced a decline of 36.7 percent
Four of the counties experienced declines in farm land values. The two counties with the largest declines, Cottonwood and Lyon, were those with the largest percentage increases from 2007 to 2008. Assessed values became closer to sale values. Historically, the assessed value would be 75 to 80 percent of the sales value, but the survey showed the new average for the fourteen counties increased to 94.78 percent. Three counties experienced average sales prices that were less than the average assessed values.
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 2009 although down slightly from the year before. In 2008 profits were good, but not at record levels. This trend will probably continue, depending on good corn and soybeans yields. Many livestock producers experienced a tough year in 2009, with losses instead of profits due to poor prices for their commodities and high feed costs.
How high can farm land values go? Supply and demand will determine this. The simple return on investment, determined by rental rates, will determine how competitive farm land is compared to other investments. If interest rates rise or farm rental rates fall, the value of land is sure to be affected in a negative way. Barring those scenarios, the price of farm land will continue to climb.
If you would like a copy of a two-page document on the trends in farm land sale prices, and you live in one of the fourteen counties surveyed, the document is available at no cost at your University of Minnesota Extension county office (contact information for Extension offices can be found at http://www.extension.umn.edu/offices/). If you reside in another county and would like the document sent to you, contact me at (507) 372-3906 or email@example.com.
David Bau is an ag business management educator with University of Minnesota Extension.