Annual Land Report December 2015

Transcription

1 $ Annual Land Report December 2015 T he transition to steady to lower farmland values is well underway. In the western Corn Belt, the correction in farmland values is in its third year. In the eastern Corn Belt, the correction is in its second year. Commodity prices remained under pressure through 2015, dropping grain farmer profit margins into the red and slowing demand for cropland markedly. However, the return of precipitation to the parched Plains along, with strong cow, feeder cattle and fed cattle prices lifted pasture and ranchland values. The amount of farmland available to the market will likely remain restrained, which will support farmland prices. Land remains in strong hands and landowners have little incentive to sell. Interest rates continue to remain favorable for farmland values. Strong incomes for some livestock producers will provide buying support in areas heavy in livestock production. This report takes a closer look at the farmland market, with the Midwest as its primary focus. The bulk of the data and research in this annual report comes from our associate publication, LandOwner newsletter, which is published twice a month. Mike Walsten, editor, LandOwner newsletter Call to subscribe to LandOwner. Only $249 for one year. News alert and analysis exclusively for Members of Professional Farmers of America 6612 Chancellor Dr., Suite 300, Cedar Falls, Iowa Sr. Vice President, Chuck Roth Publisher/Editorial Director, Chip Flory Editor, Brian Grete Editor Emeritus, Jerry Carlson Sr. Market Analyst, Rich Posson Digital Managing Editor, Julianne Johnston News Editor, Meghan Vick Inputs Monitor Editor, Davis Michaelsen Member Relations Manager, Shelley Eilderts Washington Consultants, Jim Wiesemeyer and Roger Bernard, Informa Economics Subscription Services: Editorial: To record your news alert for PF editors: PFA-NEWS ( ) 2015 Professional Farmers of America, Inc. address: editors@profarmer.com CEO, Andrew Weber President, Jeff Pence

2 Farmland Price Correction Underway The correction in Midwestern farmland values is well underway. It is completing its second year in the western Corn Belt, while the correction is completing its first year in portions of the eastern Corn Belt. The correction is being driven by the sharp decrease in net farm income, which is the result of the dramatic decline in grain and oilseed prices. The chart at right shows the drop in net farm income in 2014 and the steeper decline forecast for 2015 as forecast by USDA. USDA forecasts net farm income will decrease to $58.3 billion in 2015, down 36% from a year earlier. In addition, that total is down nearly 53% from the record high of $123.7 billion that was posted in The forecast drop in net farm income, if realized, would be the largest since 1983, both in nominal and inflationadjusted terms. USDA forecasts net cash income, which does not include inventory adjustment, at $100.3 billion, down 21% from The slower decline in cash income has tempered the decline in farmland values somewhat. Looking ahead, USDA projects ample carryover supplies of corn and burdensome ending stocks for both soybeans and wheat from this year s harvest. Market analysts expect next year s harvests will once again produce ample supplies with the result being continuing pressure on net farm incomes. It will take a substantial supply shock either in competing nations or in the U.S. next year to alter the gloomy commodity price outlook for 2016 and Recent surveys conducted by the Federal Reserve Banks of Kansas City, Chicago and St. Louis reflect the general weakness in cropland values. The Kansas City Federal Reserve bank reports the value of nonirrigated cropland across its district rose a scant 0.4% through Sept. 30 compared to a year earlierwhile the value of irrigated cropland dipped nearly 1%. The value of ranchland, however, rose about 7.5% on an annual basis. The Chicago Federal Reserve Bank reports the value of Illinois farmland declined by 4% on an annual basis and 1% in Iowa as of Sept. 30. Indiana values are unchanged, according to the bank. The St. Louis bank reports farmland values across its district declined by 2.6% compared to a year earlier. Ranch or pastureland values, however, rose about 5%. But farmers enter this period with much better financial sheets, generally, as shown by the solvency ratios below. USDA projects the agriculture industry s debt-toasset ratio at 13.0:1 and its debt-to-equity ratio at 14.9:1 for Both ratios represent an increase compared to recent years, but they have just come back to levels last seen in More importantly, these are well below levels registered in the 1970s and 1980s. Because of that improved position, the adjustments coming out of the current correction will not be as drastic as in the 1980s. And for some sharp farm operators and landowners, the correction offers an excellent opportunity to acquire high-quality farm properties. We will take a closer look at the key factors driving land values currently. And, later, we will cover those factors that support our view that farmland ownership will continue to be a strong investment in the long run. The long-term view implies that the current correction in farmland values is offering an excellent opportunity for expansion-minded farm operators and savvy operators to acquire quality farmland. There is a ray of sunshine in the gloomy clouds of sharply lower farm incomes. Farmers enter this period of sharply lower farm incomes in a reasonably positive financial position. That s not to say there will not be stress. The type of cut in income experienced the past two years is painful and requires quick adjustment. But input prices as well as cash rent prices do not adjust quickly, especially cash rents. So difficulties will take time to work through to correct. Pro Farmer s Annual Land Report /Page 2

3 USDA s annual update of farm real estate, cropland and pasture values tells a somewhat different story from what LandOwner and Pro Farmer have been hearing and tracking the past few years. We also note USDA s annual survey was a bit slow picking up the sharp upswing in values following the setback in 2009 due to the credit freeze of late But the data is helpful in setting benchmarks from which trends can be detected. The chart at right shows the state average value and percent change for all farm real estate. The total reflects the value of all farmland including farm buildings. USDA reports the value of all U.S. farm real estate rose 2.4% in 2015 compared to last year. The agency pegs the average value of farm real estate at $3,020 an acre. The Southern Plains region saw the sharpest increase at 6.1%, while the Corn Belt region marked a tepid 0.3% decline. This year s 2.4% rise is the smallest since Other than the 3% decline noted in 2009, farm real estate values have risen by 4% or more every year since During that time, values have surged as much as 21% in 2005 and averaged 9.6% annually for three years consecutively from 2011 through These gains in value exclude income returns. Obviously, strong incomes contribute to the rise in farm real estate values. Those strong incomes were the key factor behind the gains in 2005 and 2011 through The performance in cropland values is even stronger than in total farm real estate. That s because farm buildings, which depreciate, are not included in the calculation and record high prices for grains and oilseeds resulted in record high incomes and exceptionally strong demand for row-crop farmland. The value of U.S. cropland increased $30 an acre nationally in 2015 to an average value of $4,130 an acre. That figure represents a gain of 0.7% when compared to This year s gain in cropland value marks the sixth consecutive year of annual increases since values slipped in 2009 in conjunction with the credit freeze of late The Southern Plains region reports the strongest increase at 9.2%, followed by the Pacific with a 5.1% gain Farm Real Estate Value by State Dollars per acre and change from 2014 USDA - NASS Percent Annual Change U.S. Farm Real Estate Value 2015 Cropland Value by State Dollars per acre and change from 2014 USDA - NASS USDA - NASS Pro Farmer s Annual Land Report /Page 3

4 Percent Annual Change U.S. Cropland Value Percent Annual Change U.S. Pasture Value USDA - NASS USDA - NASS The Delta and Mountain regions list increases of 3.6% and 3%, respectively. The Northern Plains regions lists a 1.3% increase, while the Corn Belt region reports a decline of 2.3%. On a state-by-state basis, Texas lists the strongest annual gain at 9.5%,while Oklahoma follows with an increase of 8%. Iowa lists the largest percentage decline at 6.3% while Minnesota reports a 2.5% decrease. North Carolina, Kansas and Nebraska follow with declines of 2.4% to 2.1%. The chart above shows the annual percent change in cropland values since Values slipped into the negative only once, in 2009, marking a decline of 3.3%. Annual gains have ranged from 3.4% to 17.7% with the exception of 2009 s decline and 2015 s slim 0.7% rise. The average value of U.S. cropland has risen 8.1% annually from 2000 to 2015 and are up 183% from Similar strength since 2000 can be noted in pasture and ranchland values. The value of pastureland rose 2.3% from a year earlier to an average value of $1,330 an acre. Considering the strong prices for cattle, plus improving range and pasture conditions seen earlier this year, a rise in the value of ranch and pastureland is not a surprise. Ranch and pastureland values have posted annual gains of 3.6% to 30% from 2000 to 2015, with the exception of 2009, when values slipped 1.8%. A slight decline was noted in 2010 as well. The sharp gains noted in 2005 through 2008 was due to the rush by non-traditional investors to acquire ranch and pastureland for recreational purposes, weekend retreats and rural lifestyles. Pro Farmer s Annual Land Report /Page Pasture Value by State Dollars per acre and change from 2014 USDA - NASS USDA - NASS Average Cropland Values Up 183% Since 2000

5 The chart at right explains why farmer demand for farmland is weaker than it was in 2011 through It explains why many operators are scrambling to reduce costs across their operations. It shows USDA s projected net farm income for 2015, which includes inventory, and net cash farm income compared to each income indicator s respective 10-year moving average. USDA projects net farm income will total only $58.3 billion in 2015, down 36% from a year earlier and down 53% from 2013 s peak of $123.7 billion. The decrease in net farm income in 2014 matched its 10-year moving average for The projected decline leaves net farm income some 36% under the 10-year moving average. Net cash income, however, has not fallen as sharply and remains above its 10-year average. USDA states net cash income slipped only 6% in 2014 and remained well above its 10-year moving average. USDA projects net cash farm income to decline 21% in 2015, taking it under its 10-year moving average as well. Since farmers are the dominant buyers of row-crop cropland in the heartland, the sudden sharp swing in net farm income has trimmed their demand for farmland. The coming year may prove pivotal for some farm operators and land values. While farmers entered the recent downturn in farm incomes in relatively healthy financial condition, the steep decline has placed extreme pressure on highly leveraged operations. The chart below is flashing an important warning sign, suggesting quick action to boosting income and trim debt is needed. The chart shows the ratio of total U.S. farm debt versus U.S. net farm income. It s a helpful monitor of whether or not U.S. agriculture is generating enough income to service its debt. The history from the 1970s and 1980s shows why this 4.7:1 Debt:Income Ratio Flashes Warning Sign Total debt divided by net farm income 10.1:1 13.1:1!! 4.5:1 simple ratio serves as an important warning signal. Net farm revenues rocketed in the mid-1970s on a sudden boom in exports to the former Soviet Union. Farmland values surged as well. They posted 30% annual gains in three consecutive years in Iowa, for example. Farmers were aggressive buyers during that heady period and bought farms with little cash down and debt supported by the rising value of their farmland assets. Inflation was the worry and the high-leverage farmland purchases were made on the assumption inflation would more than compensate for the high leverage. However, debt levels rose faster than did net income. In 1976 the debt:income ratio was 4.7:1. But by 1980, it was 10.1:1, clearly warning that debt levels were too high given net income. Then two sudden shocks occurred. First, net incomes cratered when U.S. grain and oilseed exports to the former Soviet Union were embargoed. Second, interest rates soared in excess of 20% as the Federal Reserve decided to squeeze inflation out of the U.S. economy. Farmers in general were too highly leveraged to handle either one of 6.3:1! those shocks let alone both. The farm recession of the 1980s was on. By 1983, the debt:income ratio was 13.1:1. Meanwhile, credit defaults abroad and the collapse in the savings and loan industry contributed to intense stress on the financial system. The result was a rash of farm liquidations from 1983 into 1986, when a bottom in farmland values was made. The debt:income ratio in 1986 was 4.9:1, slipping under 5:1 for the first time since The ratio remained at relatively comfortable levels from 1986 to 2002, when it rose to 4.5:1 on a downturn in farm income. But a surge in commodity prices pressed the ratio back into the comfortable zone until now. Pro Farmer s Annual Land Report /Page 5

6 The immediate supply and demand outlook for all three major row crops does not promise any relief from the current low prices for corn, soybeans and wheat. Ample U.S. supplies of all three commodities are tucked away in storage. World stocks are high with another record South American soybean crop likely on the way as that region s planting season is underway. In addition, the strong U.S. dollar adds to the negative price outlook as it continues to boost the price of U.S. commodities versus those of other global suppliers. It will take some sort of shock to global production or demand to alter the outlook. The impact of these low prices can be seen in the projected 2016-crop breakeven for a central Illinois corn grower. University of Illinois ag economists project gross revenue for this grower at $800 an acre. This includes income from selling the crop and farm program payments. Meanwhile, the economists project total input costs, excluding land, at $582 an acre. This leaves a margin of $218 an acre to cover a farmland mortgage payment or cash rent as well as family living expenses. Average cash rent for such a grower was pegged at about $290 for 2015, according to the Illinois economists. That puts the cash-rent grower upside down by $72 if there is no adjustment to cash rent. Growers who own their ground or cash rent only a portion of their total operation are in a much better position than the all- or nearly all-cash rent operators. That will cushion the financial stress across farm country. Indeed, researchers at the University of Illinois say only 4% of all operators are in this all- or nearly-all cash rent category and, thus, are facing severe financial distress. That s far different from the 1980s when the financial crunch impacted nearly all operators, regardless of the type of operation. Pro Farmer s Annual Land Report /Page 6 Farm Credit Services of America Fortunately, agriculture as a whole enters this period of financial challenge in much better position than it did in the 1980s. That s not to diminish the fact that there will be shakeout in the industry, nevertheless. The USDA now projects the industry s debt-to-asset ratio at 13.0:1 and its debt-to-equity ratio at 14.9:1 for (See chart above.) Both ratios represent an increase compared to recent years, but they have just come back to levels last seen in For instance, the debt-to-equity ratio was 13.4:1 in 2014, 12.8:1 in 2013, 12.7:1 in 2012 and 14.8:1 in The debt-toasset ratio was 11.8:1 in 2014, 11.3:1 in 2013, 11.2:1 in 2012 and 12.7:1 in All of these are well below levels registered in the 1970s and 1980s. The debt-to-equity ratio was 19.5:1 in 1975, 19.4:1 in 1980 and 28.5:1 at its peak in The debt-to-asset ratio was 16.35:1 in 1975, 16.7:1 in 1980 and 22.2:1 at its peak in So, the current numbers reflect a healthier farm industry overall. But the debt-to-income ratio is well into caution category. What gives? We see the current problems as a liquidity issue due to high working capital needs. The debt itself is not so burdensome, but cash flow has dropped dramatically. Those operators who can control working capital by cutting costs have the potential to manage through the current downturn in commodity prices and emerge from this period in even stronger shape. This is more likely to be those operators who own a high proportion of their farmland and do not have extensive high-cash-rent obligations. It s the latter group that will feel the financial crunch in Another look at mortgage debt shows farmland buyers and lenders have been disciplined about leverage. That s our view after studying key data released by Farm Credit Services of America, Omaha, Nebraska. The huge farm lender serves Iowa, Nebraska, South Dakota and Wyoming. Key FCSAmerica Average Real Estate Data

7 The average loan-to-collateral ratio on farmland purchases made in 2014 was 46%. That means borrowers put 54% of their own equity into the purchase, which should give them cushion as incomes slide and land values slip. That wasn t the case in the 1970s when it was not uncommon to see mortgages ranging up to 90% of the full purchase price. The loan-to-collateral ratio is up slightly from 2013 s 43%, even with 2012 s 46% and down from 48% and 53%, respectively, in 2011 and In addition, the current ratio remained a positive 2.44 versus 2.61 in 2013 and 2.53 in Besides the relatively high equity invested in purchases, a high percentage of borrowers also locked in the interest rate on their farmland mortgage. That also provides protection against a rise in financing costs when interest rates eventually rise. The gold:cropland ratio suggests farmland is not overpriced relative to other hard assets. The chart below shows the number of ounces of gold required to purchase an acre of Illinois or Iowa cropland. It shows the economic relationship between gold and cropland is back in alignment. It suggests farmland values could stabilize or weaken in an orderly fashion over the next year rather than decline sharply. Ounces Number of ounces required to buy an acre of farmland That ratio has come back into the more normal range seen in the 1950s and early 1960s, when the price of gold was fixed, and also in the slow-growth years of mid-1990s to The return to this norm implies the market has discounted inflation fears completely and that it is the income from each asset that drives value. It suggests the farmland market has returned to the slow-growth years seen in mid- 1990s to Implications: It suggests the once-overheated farmland market may correct slowly over time rather than with a steep 1980s-style decline. A slow correction gives both operators and landowners time to adjust to the new economic realities of low commodity prices and tight profit margins. And it gives investors time to locate and purchase quality tracts that fit their investment objectives. The long-term trend in land values remains up, despite the recent setback in values. The chart below from Iowa State University s annual Land Value Survey shows the correction the November survey found last year. (This year s update will be released mid-december.) While the survey uncovered a decline in values, the long-term trend is far from being challenged. The decrease reflected by the annual survey appears to be a healthy correction in an overall uptrend, suggesting the start of a phase that gives the overall market time to return to balance. Average Value of an Acre of Iowa Farmland Iowa State University $7,943 Available supplies remain relatively tight compared to previous years. Until the financial crisis of , the normal turnover rate on farm properties was about 3% to 4%. That changed with the crisis and the grain and soybean price boom that followed. The volume coming to the market dropped substantially. The strong financial performance of farmland from both annual returns and appreciation out-matched returns from financial alternatives other than stocks. Many landowners preferred the extra security they saw in farmland ownership over the sometimes wild financial moves witnessed in the equity markets. In addition, they valued the extra of holding clear title to a physical asset that they could walk on and inspect. With farmer incomes surging, farm operators jumped at the chance to expand their existing operations. They quickly grabbed properties as they came, and sometimes before they came, to the marketplace. This further reduced supplies. Finally, capital gains taxes discourage retiring farm operators from selling their properties. Instead, they view their farmland as an annuity, counting on rental income in their retirement years. In addition, they postpone selling the ground, preferring to take advantage of stepped-up basis at the time of their death to avoid paying capital gains tax. This leaves estate settlements as the main source of farm properties coming to the market. The turnover rate has declined to 1% to 1.5% as a result. Pro Farmer s Annual Land Report /Page 7

8 Long-term demand for farmland remains bright. The projected rise to 9 billion people on the planet by 2050 suggests significant pressure on food supplies as well as an increase in the physical demand for land for housing, roads, recreation and security. Improved farming practices and technology continue to boost production. If allowed to continue, productivity increases will respond to demand and farmland values will rise. If these improves are not allowed to continue either through legislation or regulation, the decline in productivity will respond in even stronger demand for food and farmland values will respond accordingly. The numbers of people entering the middle class by 2030 is staggering. That fact is key because as people reach the middle class they achieve the ability to buy food, primarily protein. That is long-term bullish for farmland values. The chart below tells the story. By 2030, just 15 years away, China s middle class is expected to total 361 million people. That is larger than the current U.S. population. Additionally, it s nearly as Middle Class Population Boom contamination is particularly concerning as it is a known carcinogen. And, until recently, farm chemicals were largely unregulated, potentially resulting in a host of issues, as well. Water availaity is a key issue going forward as the world s population grows. The drought in California has spotlighted the conflicts between urban demands for water versus irrigation water need for crops. Irrigation has boosted crop production potential and farmland values throughout the Plains. But issues over water use have arisen along with the expansion of irrigation in some areas. The Midwest, however, does not experience that conflict as it normally has ample rainfall most years. It takes 15 inches of water to produce a corn crop. Most areas from the eastern third of Nebraska/South Dakota and on east receive that much and more in annual rainfall most years. This will tend to put a premium on Central Corn Belt farmland values over time. Not to be overlooked is farmland s protection against rampant inflation. Inflation is not currently an issue and may not be one for years. But the huge debt loads piled up by nations since the 2008 crisis is a significant source of worry. How that debt will eventually be liquidated is a major concern for some investors who are purchasing farmland and other real estate as long-term protection against any hyper inflation that may eventually occur. U.S. Public Debt Doubled in Seven Years $18 Trillion! Millions of people large as the world s total middle class population. The other key projection India s middle class is projected to reach 58 million. That puts that nation s middle class at the same size of China at the turn of the century, with the potential to grow exponentially like China s middle class did. In addition, China s government recently announced that it was ending its one-child policy that has limited population growth for decades. It says it will allow couples to have two children, which is long-term bullish for protein demand and farmland values. In addition to population growth, China s pollution problems offer severe challenges to growing quality food. The nation s authorities have acknowledged that 20% of the nation s arable farmland is contaminated. The prime offenders are the heavy metals cadmium, arsenic and nickle from rampant industrialization. Cadmium Pro Farmer s Annual Land Report /Page 8 $9 Trillion! Conclusion: Farmland values have retreated from their recent highs. The immediate outlook calls for tight to negative profit margins for farm operators. This will crimp demand for available farm properties and pressure rental returns. But a steep drop in land values is unlikely as most operators are well capitalized. The result is a market that is offering opportunties for farmers and investors to acquire high-quality cropland.

9 The value of good agricultural farmland across the central Corn Belt remained unchanged from a year earlier through the third quarter of 2015, according to a survey of ag bankers conducted by the Federal Reserve Bank of Chicago. However, the survey found key percentage swings between states that comprise the Fed bank district. The fed bank serves the northern two-thirds of both Illinois and Indiana, all of Iowa, the lower Peninsula of Michigan and southeastern Wisconsin. The survey found the value of Illinois farmland fell 4% on an annual basis and the value of Iowa farmland slipped 1% compared to the end of September Indiana bankers indicate farmland values are even with a year ago. But Wisconsin reports values rose 4% on an annual basis and Michigan bankers list a 5% increase in the value of farmland. Their gains and declines also vary from values reported at the end of the second quarter. For instance, Wisconsin reported a 2% decline on an annual basis at the end of June, compared to the 4% rise now indicated. Michigan is consistent with its most recent gain of 5%. That follows an annual increase of 6% reported at the end of June. Iowa seems to be moderating as it now indicates values are off 1% on an annual basis compared to the 7% annual decline listed at the end of June. Illinois reports a decline of 4% on an annual basis as of Sept. 30, which is only moderately less than the 6% annual decrease listed at the end of June. Illinois values rose 4% on a quarterly basis. Indiana shows moderation as it now reports values are even with a year earlier while that state s bankers indicated a 4% annual gain at the end of June. Indiana values are down 3% when compared to the previous quarter. Looking ahead, the survey found 52% of respondents anticipated a decrease in farmland values during the fourth quarter of Only 1% anticipated an increase. This means 47% of survey respondents anticipate farmland values will remain steady through the fourth quarter of The bank indicates the value of good agricultural farmland flucuated between 2% higher and 2% lower on a quarterly basis through That flucuation narrowed to 1% higher to 1% lower on a quarterly basis through the third quarter of That narrow variance could be a sign the farmland market is stabilizing for the time being. The survey also found agricultural credit conditions deteriorated during the third quarter due to lower commodity prices. Central Corn Belt Farmland Values Mixed -1-2 Percent Change Quarter* Annual** Illinois 4% -4% Indiana -3 0 Iowa -1-1 Michigan Wisconsin District +1% 0% Federal Reserve Bank of Chicago * versus previous quarter ** versus year earlier Varied Results Reported Between Regions Percent change from previous quarter Percent change from year earlier * insuffi cient response Federal Reserve Bank of Chicago Change by Quarters in Central Corn Belt '08 '09 '10 '11 '12 '13 Federal Reserve Bank of Chicago Values Unchanged from Year Ago October-September annual basis Federal Reserve Bank of Chicago Respondents indicate repayment rates for non-real-estate farm loans were down in the quarter versus a year earlier and loan demand was up. But the bankers indicated they expected to work through the weaker credit conditions with most borrowers. Pro Farmer s Annual Land Report /Page 9 * * '14 '15

10 Cropland Values Weaken in Central, Southern Plains Cropland values across the Central and Southern Plains are steady to weaker, according to the Federal Reserve Bank of Kansas City. But the quarterly survey conducted by the Fed bank finds the value of ranch and pastureland are modestly higher. The fed bank s district covers Kansas, western Missouri, Nebraska, Oklahoma and the Mountain States of Colorado, northern New Mexico and Wyoming. The value of district cropland rose a scant 0.4% on an annual basis through the third quarter of 2015, the bank reports. That compares to an annual decline of nearly 3% recorded for the second quarter. District irrigated cropland slipped 1%, continuing the weakness reported at the end of the second quarter when the survey reported an annual decline of nearly 4%. Ranchland values, meanwhile, rose 7.6% on an annual basis. That gain follows an annual increase of nearly 9% reported through the second quarter of The survey revealed mixed land value trends from across the bank district. The Mountain States reported an Percent Change by Quarter '09 '10 '11 '12 '13 '14 '15 annual gain of nearly 7% in the value of non-irrigated cropland and slightly more than a 13% jump in the value of ranchland. Oklahoma reported cropland values remained virtually steady on an annual basis through the end of September, while the value of ranch and pastureland rose 9%. Nebraska bankers indicate the value of non-irrigated cropland rose about 2.5% on an annual basis, but the value of irrigated cropland slipped by about the same amount. They report ranch and pastureland values rose nearly 7%. Meanwhile, Kansas reported slight declines in the value of both non-irrigated and irrigated cropland and a 5% rise in the value of ranchland. Looking ahead, the sharp decline in farm incomes has, for the first time in six years, a majority of respondents looking for declines in the value of all three land types. In addition, 81% of the bankers reported a significant or modest deterioration in the overall working capital for crop producers, up from 65% in Percent Annual Change October-September annual basis Federal Reserve Bank of Kansas City Cropland Down 10% to Up 9% Ranchland Down 2% to Up 5% (Versus previous quarter) Non-irrigated Irrigated Ranchland Kansas -3.5% 1.1% -0.9% Missouri Nebraska Oklahoma Mtn. States* District Federal Reserve Bank of Kansas City Irrigated Cropland Values Ease 1% Ranchland Up Nearly 8% (Versus previous year) Non-irrigated Irrigated Ranchland Kansas -0.3% -0.7% 5.0% Missouri -1.6 n/a** 4.6 Nebraska Oklahoma Mtn. States* District % * Mountain States: Colorado, New Mexico and Wyoming Source: Federal Reserve Bank of Kansas City Federal Reserve Bank of Kansas City * Mountain States: Colorado, New Mexico and Wyoming Source: Federal Reserve Bank of Kansas City ** not enough data Federal Reserve Bank of Kansas City Pro Farmer s Annual Land Report /Page 10

11 Southern Corn Belt, Mid-South Cropland Values Slip Modestly The value of southern Corn Belt and Mid-South cropland declined modestly in the third quarter of 2015 relative to a year ago, according to a quarterly survey of agricultural bankers conducted by the Federal Reserve Bank of St. Louis. However, the survey says the value of ranch/pastureland increased from a year earlier. In its 14 th quarterly survey, the bank found the average value of quality farmland slipped 2.6% compared to a year earlier. The slippage is relatively modest following the slight 0.5% annual increase reflected at the end of the second quarter. The value of ranch/pastureland rose 4.7% on an annual basis through the third quarter of That gain is the largest since the first quarter of The increase compares to a 3.2% gain reported through the second quarter of Similar to recent surveys conducted by the bank, a majority of bankers expect both quality farmland and ranch/pastureland values to decline in the fourth quarter of 2015 compared with a year earlier. Cash rents rebounded modestly in the third quarter of 2015 compared with a year earlier, the bank states. Cash rent for quality farmland rose a slim 0.7% in the third quarter, the bank reports, while rents for ranch/pastureland rose 2.5%. Bankers expect cash rents for both categories of farmland will decline the fourth quarter. However, the bank notes there appears to be a stronger conviction that cash rents for quality farmland will decline than that farmland values will decrease. The survey also reveals district bankers expect a modest upswing in loan demand in the fourth quarter but a more sizable drop in the rate of loan repayment. They further expect little change in the availability of funds in the fourth quarter. The bank also asked bankers their view of the farm sector s prospects over the next 5 to 10 years. About half were optimistic, while only about 15% were pessimistic, the bank reports. The Fed bank serves Arkansas, the southern halves of Illinois and Indiana, the eastern two-thirds of Missouri, the western half of Kentucky, the northern half of Mississippi and the western third of Tennessee. Percent Farmland Values Decline; Pastureland Values Rise Percent Cropland Cash Rent Rises Federal Reserve Bank of St. Louis Federal Reserve Bank of St. Louis Ranchland values in western states jumped 22% on an annual basis through the third quarter of 2015, reports the Federal Reserve Bank of San Francisco. Meanwhile, the quarterly survey of ag bankers found wide variance in the value of non-irrigated versus irrigated cropland. Dryland cropland values rose 10.4% on an annual basis, while the value of irrigated cropland declined 14% compared to a year earlier. The bank serves Arizona, California, Idaho, Oregon, Utah and Washington. The survey found impressive gains for all three categories of farmland when compared to the previous quarter. The value of non-irrigated cropland ballooned 35% when compared to the second quarter of The value of Pro Farmer s Annual Land Report /Page 12 Western Ranchland Values Jump 22% irrigated cropland jumped 22% and the value of ranchland rocketed nearly 30% higher versus the prior quarter. The bank pegs the value of nonirrigated cropland as of Sept. 30 at an average of $7,225 an acre across the district. Irrigated cropland averaged $10,700 an acre, while ranchland was pegged at an average of $2,215 an acre. Western Cropland Values Post Big Swings; Ranchland Surge % Change Land Type annual Non-irrigated 10.4% Irrigated Cropland Ranchland 22.1 Source: Federal Reserve Bank of San Francisco

12 Cropland Values Fall in Upper Midwest/Northern Plains The decline in the value of Northern Plains and Upper Midwest cropland accelerated, according to preliminary data from the Federal Reserve Bank of Minneapolis. In addition, the value of ranch and pastureland, while higher on an annual basis, reflects weakness as well, the banker survey indicates. The Fed bank serves bankers in Minnesota, Montana, the Dakotas, the Upper Peninsula of Michigan and northwest Wisconsin. The survey shows the value of non-irrigated cropland fell 9.3% as of Oct. 1 compared to a year earlier. That s three percentage points greater than the 6.3% annual decline noted July 1. The bulk of the decline is reported in the two heavy corn producing states of Minnesota and South Dakota. Each are down 8.5% and 8.1%, respectively, on an annual basis. The trend to lower prices continued in these states for the value of irrigated cropland. South Dakota bankers report an annual decrease of 6.5%, while Minnesota lists a 3.4% decline. North Dakota reports a drop of 7% in irrigated cropland values. But doubledigit gains in the value of irrigated cropland in Montana and Wisconsin offset these declines, resulting in a boost of 2.7% for irrigated cropland across the district. Ranch and pastureland values, meanwhile, edged higher, with a 9% rise in Wisconsin and an 8.6% surge in Minnesota pacing the increase, followed by a 5.2% boost from North Dakota. But Montana ranchland values remained basically unchanged and South Dakota s ranch and pastureland slipped 1.7%, resulting in a 1.7% gain across the district. On a quarterly basis, Wisconsin led declines in non-irrigated cropland with a 7.3% slide compared to the second quarter of North Dakota follows with a decrease of 6.4%. Montana was the lone exception, reporting a rise of 2.1% in the value of non-irrigated cropland for the quarter. The survey also shows double-digit declines in average cash rents. The district reports a decrease of 16% in the average cash rent for non-irrigated cropland. Minnesota, South Dakota and Wisconsin list declines of 15%, 11% and 14%, respectively. The average cash rent for non-irrigated cropland in Minnesota is reported as $214 an acre; South Dakota lists an average of $168; and Wisconsin reports an average cash rent of $158. Average Land Value by State and by Type Minnesota Montana N. Dakota S. Dakota Wisconsin Non-irrigated $6,581 $ 640 $2,305 $5,083 $4,390 Irrigated 6,808 1,830 3,050 6,471 4,850 Ranchland 2, ,365 2,483 Federal Reserve Bank of Minneapolis preliminary survey data Average values include all banks responding to current survey. Quarterly and Annual Percent Changes by State Quarterly Annual Non-irrigated Irrigated Ranchland Non-irrigated Irrigated Ranchland Minnesota -1.7% 6.9% 2.6% -8.5% -3.4% 8.6% Montana N. Dakota S. Dakota Wisconsin District Percent change includes only those banks responding to both the current and year-ago survey. Caution: Extremely small sample size for Montana and North Dakota. Federal Reserve Bank of Minneapolis preliminary survey data Percent Change by Quarter Percent Annual Change October-September Annual Basis Federal Reserve Bank of Minneapolis Federal Reserve Bank of Minneapolis Pro Farmer s Annual Land Report /Page 11

13 Texas Farmland Values Show Annual Gain The value of Texas rural ag land rose on an annual basis through the third quarter of 2015, reports the Federal Reserve Bank of Dallas. But much of the annual gain came earlier as its survey of ag bankers finds the value of district dryland was the only rural land category to show an increase on a quarterly basis (up 1%). The value of district irrigated cropland decreased 3% and ranchland declined 7% when compared to the previous quarter. The return of drought conditions in the third quarter is cited for the quarterly downturn in values. The bank serves all of Texas, southern New Mexico and northern Louisiana. Dryland Cropland Values Up 4% Average Prior Value Year $ per acre % change 1. Northern High Plains $ % 2. Southern High Plains Northern Low Plains Southern Low Plains 1, Cross Timbers 1, North Central Texas 2, East Texas 2, Central Texas 3, Coastal Texas 2, South Texas n.r. n.r. 11. Trans-Pecos and Edwards Plateau 1, Texas $1, % Federal Reserve Bank of Dallas Texas Q3 Annual Change October-September basis Ranchland Values Gain 2% Average Prior Value Year $ per acre % change 1. Northern High Plains $ % 2. Southern High Plains Northern Low Plains Southern Low Plains 1, Cross Timbers 1, North Central Texas 2, East Texas 2, Central Texas 4, Coastal Texas 2, South Texas 2, Trans-Pecos and Edwards Plateau 1, Texas $1, % 12. Southern New Mexico Northern Louisiana 2, Entire District $1, % n.r. = not enough reported 12. Southern New Mexico Northern Louisiana 1, Entire District $1, % Texas Irrigated Cropland Up 1% Average Prior Value Year $ per acre % change 1. Northern High Plains $1, % 2. Southern High Plains 1, Northern Low Plains 1, Southern Low Plains 1, Cross Timbers n.r. n.r. 6. North Central Texas 2, East Texas n.r. n.r. 8. Central Texas 3, Coastal Texas 2, South Texas n.r. n.r. 11. Trans-Pecos and Edwards Plateau 1, Texas $1, % 12. Southern New Mexico 4, Northern Louisiana 3, Entire District $2, % n.r. = not enough reported Federal Reserve Bank of Dallas Pro Farmer s Annual Land Report/Page 13

14 Iowa Farmland Values Slide 4% September 2015 Iowa Farm & Land Chapter #2 REALTORS Land Institute Survey of Farm Land Values (Dollars Per Acre) Land Classification by Potential Corn Production Percent change in tillable cropland values High-quality Medium-quality Low-quality Not Tillable Timber Past Area in Iowa Cropland Cropland Cropland Pasture 6 Mo. Sept. March Sept. March Sept. March Sept. March Sept. March Central $9,917 $10,218 $7,318 $7,637 $4,835 $5,067 $2,857 $2,778 $2,358 $2, % East-Central 10,061 10,446 7,327 7,482 4,642 4,835 2,828 2,831 2,147 2, % North-Central 9,428 9,800 7,281 7,683 4,994 5,244 2,358 2,400 1,788 1, % Northeast 9,385 9,855 7,179 7,302 4,630 4,933 2,696 2,891 2,600 2, % Northwest 11,339 11,607 8,429 8,726 5,829 5,913 2,994 2,886 2,534 2, % South-Central 7,286 7,760 5,069 5,673 3,221 3,029 2,861 2,638 2,513 2, % Southeast 9,836 10,427 6,549 6,772 4,044 4,192 2,345 2,382 1,991 1, % Southwest 8,892 9,119 6,625 7,208 4,783 4,792 3,250 3,417 2,280 2, % West-Central 9,631 9,901 7,709 7,921 5,311 5,275 2,830 2,975 2,350 2, % State Average $9,531 $9,904 $7,054 $7,378 $4,699 $4,809 $2,780 $2,800 $2,285 $2, % The value of an acre of Iowa tillable cropland slipped 3.7% during the six-month period ending Sept. 1, according to a survey conducted by the Iowa Chapter of the REALTORS Land Institute (RLI). Combining that decline with the 7.6% decrease reported March 1 results in a decline of 11.3% for the year ending Sept. 1. The decrease is the second in consecutive years for tillable Iowa cropland on a September-to- September annual basis. Values are down 20% since the peak posted in According to the RLI survey, the statewide average value of an acre of high-quality tillable cropland is $9,531, down 3.8% compared to March 1. The value of mediumquality cropland is listed at $7,054 an acre, down 4.4% since March 1. The value of low-quality cropland is reported at $4,699 an acre, down 2.3% from six months earlier. A rise in the value of pasture in some areas tended to limit the decline in low-quality cropland. Medium-quality cropland, however, reflects more fully the impact of the drop in corn and soybean prices. As in the March survey, all nine of Iowa s crop reporting districts listed decreases. The southwest district reports the smallest percentage decline at just 1.9%. That was the only crop district to report a decrease of less than 2%. The south-central district lists the largest percentage decline at 5.4%. That s likely due to the low ratio of high-quality versus medium-quality cropland in that district. The northeast district continues to report the largest percentage decrease down 15.1% on an annual basis. That decline is due to the combination of two difficult cropping seasons in a row and a plunge in dairy profits. The value of non-tillable pasture and timberland were basically steady down 0.7% and 0.4%, respectively for Iowa Cropland Values Down 11% on Annual Basis -2.5% -9.3% -1.9% -10.7% -3.9% -8.5% -4.5% -12.6% -3.7% -11.2% -5.4% -13.0% -4.1% -15.1% -3.2% -11.6% -4.5% -10.1% Percent Change March 1, 2015 to Sept. 1, 2015 Percent Change September 2014 to September 2015 Change in value for an average acre of tillable cropland Source: REALTORS Land Institute the six-month period. The survey puts the statewide average value of an acre of pastureland at $2,780 an acre and the value of an acre of timberland at $2,285. On an annual basis, pastureland is unchanged from a year earlier, while the value of timber ground is down about 2%. The south-central district reports an 8.5% gain in the value of pastureland, while the northwest and central districts are up 3.8% and 2.8%, respectively. Farmers still comprise 75% to 80% of buyers, according to the survey. Investor buyers are becoming more active, the survey notes. Meanwhile, the volume of properties moving to the market remains tight. Pro Farmer s Annual Land Report/Page 14

15 Indiana Cropland Values Decline 4% to 5% The value of Indiana farmland fell 4% to 5% for the year ended in June, according to the annual Farmland Values and Cash Rents Survey conducted by Purdue University. This marks the first time since 2009 that all three quality classes of farmland declined. In 2009, there were small declines of 0.2%, 1.2% and 1.7% for top-, average- and poorquality land, respectively. This year s survey marks losses of 5.1%, 3.8% and 4.8% for top-, average- and poor-quality land, respectively. The survey indicates the bulk of this year s decline occurred in the first half of Since Jan. 1, the report shows values are down 4.4%, 4.1% and 7.0% for top-, average- and poor-quality farmland, respectively. Last year at this time there were signals that the boom propelling crop agriculture upward for ten years was running out of gas, states Craig Dobbins, Purdue University extension ag economist who conducted the survey along with research associate Kim Cook. Since then, the continued low grain prices have begun to influence things other than net farm income. Purchases of machinery, building, farmland and other capital items have declined, says Dobbins. The survey resulted in a statewide average value for top-quality farmland of $9,266 an acre. It pegged the state-average value of average-quality farmland at $7,672 an acre and the value of poor-quality farmland at $5,863 an acre. The west-central region continues to have the highest per-acre farmland values. But values in this region experienced some of the largest declines. The value for top-, average- and poor-quality farmland was $10,383, $8,913 and $6,926 per acre, respectively. These represented decreases of 7.3% (average-quality farmland) to 11.5% (top-quality farmland). Contrary to trend, the southwest region reported increases in farmland values. The average value of topquality farmland rose 13% to $10,218 an acre. The value of average-quality farmland increased 7.4% to $7,522 an acre. The value of poor-quality farmland rose 8.4% to $4,892 per acre. For the state, the average corn yield for top-, average- and poor-quality farmland are 200 bu., 169 bu. and 137 bu. per acre, respectively. The survey also found the value of hunting and recreational farmland slipped 0.4%, averaging $4,523 an acre. This follows a 23% surge in Cash rents lower. Cash rents for all farmland qualities declined in 2015, the survey shows. Top-, average- and poor-quality farmland had cash rent averages of $285, $229 and $175 per acre, respectively. Those are declines of 1.3% to 2.4%. The largest declines were noted in the west-central region, which saw cash rental rates decreased 3.9% to 5.1%. Top -11.5% Ave. -7.3% Poor -9.0% Top -3.2% Ave. -3.8% Poor -4.7% Top -9.0% Ave. -5.4% Poor -5.7% Top -2.7% Ave. -2.1% Poor 1.8% Top -1.9% Ave. -3.7% Top -13.0% Poor -4.9% Ave. 7.4% Poor 8.4% Top -5.1% Ave. -3.8% Poor -4.8% Percent increase in top-, average- and poor-quality farmland by region; Craig Dobbins and Kim Cook, Purdue University Changes by Region and Land Quality Land Corn Dollars Per Acre Percent Area Class Per Acre June '14 June '15 Change North Top 202 $9,856 $9, % Ave ,919 7, Poor 136 5,888 5, Northeast Top 191 9,310 9, Ave ,753 7, Poor 130 6,013 6, W. Central Top ,726 10, Ave ,616 8, Poor 156 7,611 9, Central Top ,528 9, Ave ,640 8, Poor 144 6,861 6, Southwest Top 204 9,041 10, Ave ,006 7, Poor 124 4,513 4, Southeast Top , Ave ,368 4, Poor 114 3,360 3, State Top 200 9,765 9, Ave ,979 7, Poor 137 6,160 5, Craig Dobbins and Kim Cook, Purdue University Pro Farmer s Annual Land Report/Page 15

16 Illinois Farmland Down 2% to 7% Prices for Illinois farmland are down by 2% to 7%, depending on the quality of farmland and location, according to the midsummer Snapshot Survey conducted by the Illinois Society of Professional Farm Managers and Rural Appraisers (ISPFMRA). Land values are continuing a general softening across the state with the exception of some regional areas where there has been very little land for sale, says David Klein, AFM, ALC, vice president of Soy Capital Ag Services, Bloomington, Ill., and co-chair of the annual ISPFMRA Land Values Survey and Conference. Decreases in farmland returns for 2015 and 2016 are seen as the main reason for the lower values, Klein explains. USDA projected income for 2015 is expected to be the lowest since 2010 and our survey respondents are telling us they expect the softness in land values to continue. The survey found respondents expect corn prices to average $3.90 into The Snapshot Survey is done annually by Dr. Gary Schnitkey, University of Illinois College of ACES in conjunction with ISPFMRA. This information supplements ISPFMRA s larger efforts at year-end to document farmland prices and cash rents across Illinois and is part of the group s Land Values Conference held each March. According to the survey, one year ago respondents said excellent-quality farmland averaged $13,000 per acre. This year the reported average is $12,200 per acre, which indicates a drop in values of 6.5%, Klein says. Good-quality farmland decreased just under 6% from a year ago and average-quality land was down nearly 8%. In a normal year, excellent-quality farmland averages more than 190 bu. of corn per acre, good-quality farmland averages between 170 and 190 bu. per acre, and average-quality farmland averages between 150 and 170 bu. per acre. A low supply of farmland for sale during the first half of 2015 may be helping prop up values, Klein asserts. Survey participants were divided on expectations for the supply of farmland coming to the market in the second half of 2015 with 45% expecting the same, 27% expecting more and 27% expecting less farmland for sale, he continues. He notes farmers continue to be the primary buyers of farmland, but 72% of respondents said they are seeing the same or higher investor demand for farmland during this pullback. Investors have consistently been out-bid by operating farmers the past few years for farmland at higher prices. The current setback in prices is due primarily to less aggressive demand from operating farmers. He adds that while 95% believe interest rates will stay Pro Farmer s Annual Land Report /Page 16 the same or increase less than one percentage point between now and year-end due to the condition of the general economy, interest rates still remain an important concern to this group regarding their outlook on farmland prices. They are also highly concerned with commodity price decreases from reduced global demand and how this will affect farmland values, Klein says. They look at the potential for increased pesticide and seed costs as new technologies are released to battle weed resistance issues, while they expect fertilizer costs to retrace slightly. We continue to see the settling pullback of farmland values in a period where fluctuations in all financial markets and currencies are moving rapidly, Klein continues. Illinois farmland continues to provide the long-standing unique hard-asset stability that makes it distinctive to other investments. We also continue to be optimistic that because Illinois farmland is among the most productive in the world and our farmers are some of the most efficient at responding to market forces and management practices, Illinois farmland will continue to be a historically competitive investment well into the future. Cash Rents Also Dropping: Cash rents in 2016 are expected to be about $30 per acre lower than 2015 cash rents Schnitkey reports. He projects 2016 rents for excellent-quality farmland will be in the range of $316 compared to current values of $350; $267 in 2016 for good-quality land compared with $295 for this year; $219 next year for average-quality land compared with $250 in 2015; and, $177 for fair-quality land in 2016 compared with this year s $200 rent per acre and Expected 2016 Illinois Cash Rents on professionally managed farms Land Class 2015 Rent Expected 2016 Rent $/acre $/acre Excellent $350 $316 Good Average Poor Illinois Society of Professional Farm Managers and Rural Appraisers Dr. Gary Schnitkey, University of Illinois Survey respondents indicate 24% use crop share rent leases, 12% use modified crop share leases, 39% use cash rent leases, 18% use a variable lease, and 7% use a custom lease.

17 For the first time in recent years, the weighted-average statewide value of Nebraska farmland declined about 2% as of Feb. 1, compared to a year earlier, according to this year s survey of farm and ranchland values conducted by Jim Jensen and Roger Wilson, University of Nebraska-Lincoln (UNL) agriculture economists. The survey indicates the weighted-average value of an acre of Cornhusker farmland was $3,250. The survey also found 2015 cash rents decreased with declines deeper for dryland cropland than irrigated. The survey shows dryland cropland declined 4% to 9%, depending on whether or not it had irrigation potential. Cropland with irrigation potential declined by 4%, while cropland without irrigation potential declined 9%. Irrigated cropland declined by similar amounts as dryland cropland, according to the survey. Center-pivot irrigated cropland slipped 5%, while the value of gravityirrigated cropland decreased 6%. Survey respondents indicate the slighter percentage declines in irrigated cropland versus dryland crop are due to the generally higher and more consistent crop yields on irrigated cropland. Nebraska Farmland Values Decline 2% Dryland Cropland Posts Steepest Decrease, -9% Northwest $860 +1% State Average $3,250-2% Southwest $2,065 +4% North $1,330 +9% Average Value Per Acre by District, by Land Type final Central $3,995-6% South $4,625-4% Farmland related to the cattle industry, however, recorded a different story. The average value of tillable grazing land rose 9% to a statewide average of $1,515 an acre. The value of non-tillable grazing land rose 16% to a statewide average value of $1,005 an acre. Hayland jumped 20% to an average value of $2,355 an acre. On a regional basis, the north, which has a low percentage of cropland to pasture and hayland, showed the strongest percentage gain Land Type Northwest North Northeast Central East Southwest South Southeast State Dryland Cropland (no irrigation potential) $ per acre 730 1,580 5,645 3,115 5,980 1,855 3,340 5,060 3,390 % change Dryland Crop (irrigation potential) $ per acre 870 2,290 7,065 4,095 7,310 1,950 4,510 6,940 5,030 % change Grazing Land (tillable) $ per acre 535 1,395 3,695 2,615 4,205 1,135 2,350 3,035 1,515 % change Grazing Land (non-tillable) $ per acre ,580 2,030 3, ,815 2,275 1,005 % change Hayland $ per acre 1,115 1,905 3,630 2,890 4,080 1,965 2,955 3,100 2,355 % change Gravity-Irrigated Cropland $ per acre 3,235 4,135 7,355 6,905 8,445 4,435 7,095 7,995 6,900 % change Center-Pivot Irrigated Cropland* $ per acre 3,625 4,835 8,150 7,825 9,575 5,790 8,270 9,425 7,315 % change All Land Average** $ per acre 860 1,330 6,140 3,995 7,100 2,065 4,625 5,990 3,250 % change * Value of pivot not included in per-acre value ** Weighted average Jim Jensen and Roger Wilson, University of Nebraska-Lincoln Northeast $6,140-5% East $7,100-3% Southeast $5,990-3% 2014 and 2015 UNL Nebraska Farm Real Estate Market Developments Surveys up 9%. The central region, meanwhile, which is heavily dominated by cropland, fell 6% on average. The sharpest decline in the two irrigated cropland classes were reported in the central district at 12% and 14%, along with slight decreases in all other crop districts except the northwest. The northwest district, however, reported a gain of 6% in the value of gravity-irrigated cropland. That region is a major cowcalf producing area in the state. The recordhigh profits seen for cows and feeder calves in 2014 likely contributed to the strength in irrigated cropland values in that region. Pro Farmer s Annual Land Report /Page 17

18 The value of North Dakota cropland was flat on a statewide average basis in 2014, but that reading understates the wide variance seen between regions. That comes from Andrew Swenson, North Dakota State University Extension farm management specialist from the survey of land values and cash rents as of January The survey was commissioned by the North Dakota Department of Trust Lands. According to Swenson, average cropland values dropped just 0.6% during But values varied widely across the state. Cropland values were strong in western regions but weak in the east. The largest increase in per-acre cropland values was 13% posted in the southwestern region, which averages $1,440 an acre. The northwestern region follows with an 11% rise to $1,051 an acre. The southcentral region rang up a 9% gain, reaching $1,051 an acre. Cropland values per acre were essentially flat in the north-central region at $1,764 an acre and the southern Red River Valley at $4,340 an acre. Values eased 5% to $3,031 an acre in the southeastern region. They declined 7% in the northeastern region, slipping to $1,904 an acre. The east-central region saw slippage of 8% to $2,286 an acre. The northern Red River Valley regions paced declines with a 9% drop to $2,983 an acre. Last year, several factors helped keep land values strong in western North Dakota, Swenson says. There were good yields and prices for crops such as durum wheat and field peas. Also, crop producers in the western part of the state are more likely to be diversified with a beef cow-calf enterprise, which experienced record profits. Lastly, income from the region s energy development has provided funds for investment. Although the cropland value, on average, was flat, the survey indi- Pro Farmer s Annual Land Report /Page 18 North Dakota Cropland Turns Flat Northwest $1,051 11% Northwest $ % Southwest $1,440 13% Cropland Down 1% Statewide North Central $1,764 1% Cash Rents Up 3% Statewide cated that cropland rents increased an average of 2.6% from January 2014 to January 2015, Swenson says. Land rents have typically lagged behind land values. The strongest percentage increases were 7% in the south-cental and 6% in the east-central regions. Cropland rents increased about 2% in most regions, which include the northwestern region, rising to an average of $35.40 an acre, South Central $1,661 9% North Central $ % Northeast $1,904-7% East Central $2,286-8% Andrew Swenson, North Dakota State University Extension Southwest $ % South Central $ % Northeast $ % East Central $ % Andrew Swenson, North Dakota State University Extension North Valley $2,983-9% Southeast $3,031-5% South Valley $4,340 0% North Valley $ % Southeast $ % South Valley $ % north-central region, at $51.10 an acre, northeastern regions, rising to an average of $57.60 an acre, northern Red River Valley, averaging $91 an acre, and southeastern region, reaching $98.30 an acre. Cropland rents increased 1% reaching an average of $ an acre in the southern Red River Valley and were flat at $38.60 an in the southwestern region.

19 South Dakota Cropland Values Retreat to 2013 Levels The value of South Dakota all agricultural land rose 1.4% in 2014, according to the annual South Dakota State University Farm Real Estate Market Survey. Pacing the slight gain were increases in the value of rangeland and pasture, as well as a boost in the value of hayland. However, the value of cropland slipped, dropping the average value back to 2013 s level. The survey, conducted by Dr. Larry Janssen, Jack Davis and Sarah Adams Inkoom, pegged the average value of an acre of cropland at $4,265 as of Feb. 1. That s a decrease of 4.8% from a year earlier and nearly even with 2013 s average of $4,249. The decline erases the 5.4% rise seen the previous year. In addition, it reverses the trend of 17.7% to 37.8% annual increase posted in the three previous years. The average value of an acre of agricultural land rose to $2,505 an acre. The 1.4% rise seen as of Feb. 1 compares to an annual boost of 6.1% the previous year and gains of 16.5% to 33.6% noted in the three prior years. The value of rangeland and pasture land rose 20.3% and 13.5%, respectively. These gains compare with the increases of 7.9% and 4.0%, respectively, from 2013 to 2014 and are similar to the double-digit rates from 2010 to Average non-irrigated cropland values per-acre vary from $6,329 in the east-central to $3,895 in the central and $1,193 in the northwest region. Cash rental rates for cropland and hayland declined statewide and in several regions, while cash rental rates for pasture/rangeland increased. Statewide, from 2014 to 2015, average per-acre cash rental rates decreased $5.00 for cropland and $2.25 for hayland, and increased $3.00 for rangeland. Cash rental rates for all land uses increased in western South Dakota and decreased or held steady in the southeast region. Cropland cash rental rates declined in all regions east of the Missouri River, while pasture and rangeland cash rental rates increased in almost all regions of the state. The highest non-irrigated cropland values and cash rental rates continue to occur in the Minnehaha-Moody county cluster where the average value of cropland in 2015 is $7,837 per acre and average cash rental rate for cropland is $244 per-acre. Cropland values average $7,138 per-acre and cropland cash rental rates average $240 per-acre in the Clay-Lincoln-Turner-Union county cluster. At the regional level, average per-acre cash rental rates for non-irrigated cropland in 2015 vary from $204 in the east-central region to $43.60 in the southwest region. Average rangeland and pasture rental rates vary from $76.50 per-acre in the east-central region to $18.30 per-acre in the southwest region. For 2014 the average ratio of gross cash rent to current land value was 2.9% for all agricultural land, 3.4% for cropland, and 2.6% for rangeland. During the 1990s, the same Average Value of South Dakota Cropland and Hayland by Region Southwest c $1,347 h $1,166 Northwest c $1,193 h $ 917 South Central c $2,283 North Central c $4,275 i $7,000 h $2,687 Central c $3,895 i $4,380 h $2,755 Average value of an acre of dryland cropland (c), irrigated cropland (i) and hay ground (h) North East c $5,066 h $2,675 East Central c $6,329 i $6,750 h $4,220 h $1,843 Southeast c $5,887, i $7,330 h $4,030 Janssen and Davis, South Dakota State University Average Value of South Dakota Rangeland and Pasture by Region Northwest r $630 p $769 Southwest r $851 p $943 South Central r $1,338 p $1,500 Average value of an acre of rangeland (r) and tame pasture (p) North Central r $1,758 p $2,224 Central r $2,100 p $2,557 Janssen and Davis, South Dakota State University North East r $2,136 p $2,545 East Central r $2,727 p $2,908 Southeast r $2,719 p $2,945 ratios were 7.4% for all agricultural land, 8.0% for cropland and 6.8% for rangeland. Farm expansion and investment potential continue to be cited as the major reasons for purchasing farmland, the economists note. Low mortgage interest rates, high livestock prices and relatively good crop yields were the three most cited positive factors in the farmland market, the survey notes. Declining crop prices, especially for corn and soybeans, dominated the negative factors influencing the farm real estate market. Rising input costs and economic uncertainty, including interest rate risk, were other negative factors cited by survey respondents. Pro Farmer s Annual Land Report /Page 19

20 40% of Members Willing to Walk from 2016 Cash Leases There s been plenty of talk about farm operators walking away from cash leases for Now we have numbers to back up the talk. Some 12% of Pro Farmer Members and LandOwner subscribers say they absolutely will walk away from a 2016 cash lease if the rental rate is not lowered. That finding comes from our annual fall survey of both groups. Another 28% say they probably will walk away if they do not receive relief on the rental rate. That s a total of 40% who are willing to give up ground if their rental rate is not adjusted. This is the first year we ve asked this question so we do not know how this compares to a year earlier. Interestingly, 50% of respondents say they probably will not terminate the lease if the rate is not lowered and 10% say they absolutely will not walk away from the lease. That s a total of 60% who will keep the lease a high percentage, in our mind, considering the kind of projected losses these operators face if they move ahead and farm that ground in That emphasizes how important it is to the long-term financial success of the farming operation that producers are willing to likely lose money in the short-term rather than abandon the ground to cut losses. It reflects the reality that once control is lost, the chances of getting the ground back when the profit outlook is better is closer to 0% than it is to 50%. Way closer. It also underlines the highly optimistic nature of farmers who put seed into the ground year after year with the hope that it will sprout and grow, let alone make a profit. Some 25% of survey respondents say they expect cash rents to remain unchanged in 2016, down from the 29% our survey found in Additionally, only 2% expect cash rents to rise in That compares to 4% who looked for an increase in 2014.Meanwhile, 42% said they expect cash rents to decline by less than 10% for That compares to 40% who looked for a decrease of less than 10% in We note later surveys found cash rental rates declined by about 5% in Some 31% of survey respondents look for rents to decline by 10% or more for That compares to 27% who looked for a similar decline for Willing to Walk if Cash Rent Not Lowered for % 28% 50% 10% LandOwner/Pro Farmer Survey 2015 Nearly 73% Expect Lower Cash Rents in % 2% 25% 42% 25% 6% LandOwner/Pro Farmer Survey 2015 Pro Farmer s Annual Land Report /Page 20

21 75% See Lower Farmland Values Ahead Three-quarters of Pro Farmer Members and LandOwner subscribers expect farmland values to decrease in 2016, according to our annual survey. That figure is essentially unchanged from a year ago when 73% said they looked for farmland values to decline in According to the survey, 23% of respondents say they expect values will remain unchanged while just 2% say they look for land values to rise by less than 10%. That compares to last year s survey which found 21% expecting land values would remain unchanged, 6% looked for a rise of less than 10% and 1% expected a rise of 10% or more. While bearish on land values, survey respondents remain 75% Expect Lower Land Values in % cautious buyers. Forty-two percent of respondents say they will be in the market to buy farmland next year. Fifty-eight percent say they will not be looking to buy. Interestingly, these figures match exactly last year s survey results. This reflects the aggressive nature of Pro Farmer Members and LandOwner subscribers. This, coupled with the 60% who say they will not walk away from their current cash lease highlights how critical the control of farmland is to our Members and landowners. In addition, only 7% of survey respondents say they intend to sell farmland in Again, that nearly matches last year s survey results. The Pro Farmer/LandOwner Farmland Survey was conducted in October. 42% Look to Buy Land 1.6% 23% 48% 27% LandOwner/Pro Farmer Survey 2015 LandOwner/Pro Farmer Survey 2015 Survey Comments Reveal Varied Attitudes on Rent We found a wide range of attitudes toward cash rents and farmland values in our fall Pro Farmer Member/Landowner subscriber survey. Here are just a few: Nebraska: Corn and soybean prices doubled in three years, but land prices went up by four times. Of course rent and land prices will come down. They ll drop by 50% just like they did in 1984 compared to 1979 prices. of any rents or leases being reduced, but then, those involved would keep it a secret. Iowa: Rental rates will be slow to come down until we have three years of below-breakeven margins. Ohio: In the coming years, I look for a 50% drop in farmland prices. Kansas: I would say land prices will decline less than cash rents will decrease. Iowa: We are fortunate to have understanding landlords and have a flex lease. We try to be fair with each other. They believe caring for the land properly is more important than the high unfair rental rates some are getting. We care. They care. We are blessed. Iowa: If you walk away from rented ground, three to five other farmers will fight over it. Buy the ground rather than rent it. Make the payments and it is yours and your banker s. Rent the land and it might be yours for awhile. If you plan to farm for a lifetime, buy the farm! Texas: Land prices have not declined any. I have not heard Illinois: Rental rates range from $200 to $400 in my area of Illinois. South Dakota: There will be other belt-tightening avenues taken before rent goes down. Ohio: Competition for ground in our area is still very strong. We do not expect farmland prices to decline or rental rates to drop. Illinois: Bought land two years ago at a good price and can handle any moderate downturn. Minnesota: Big soybean yields may help cash flow. Government farm payments up to $80 an acre may impact cash rental rates. Pro Farmer s Annual Land Report /Page 21

22 Canadian Farmland Values Up 14% in 2014 The value of Canadian farmland rose 14.3% in 2014, according to the annual appraisal update of 245 benchmark farms across the nation conducted by Farm Credit Canada (FCC). FCC has conducted the annual appraisal since While a double-digit gain, the increase is smaller than the 22.1% surge posted in 2013 and 19.5% gain in Overall average values have continued to increase in the nation since In all provinces, farmland values either increased or remained stable. Saskatchewan, the darling of various investment funds, experienced the highest average increase at 18.7%. Quebec followed with an annual gain of 15.7%. Ontario posted an increase of 12.4% and Manitoba rose 12.2%, according to FCC. The average increase in Prince Edward Island was 9.3%, followed by a gain of 8.8% in Alberta. New Brunswick saw an increase of 8% and Nova Scotia saw average land values rise by 7%. British Columbia also saw a rise in values 4.2%. Land values in Newfoundland and Labrador both remained unchanged for the fourth consecutive year. Percent Change in Farmland Values Provinces Alberta 8.8% 12.9% British Columbia Manitoba New Brunswick Newfoundland & Labrador Nova Scotia Ontario Prince Edward Island Quebec Saskatchewan Canada 14.3% 22.1% Farm Credit Canada Canadian Farmland Values Nebraska Survey Reports Decline in 2015 Cropland Cash Rents Cash Rent Per Acre by District, by Land Type Land Type Northwest North Northeast Central East Southwest South Southeast Dryland Cropland Average % change High Low Gravity Irrigated Cropland Average % change High Low Center Pivot Irrigated Cropland** Average % change High Low Pasture Average % change High Low ** Assumes landowner owns total irrigation system Jim Jensen and Roger Wilson, University of Nebraska-Lincoln Pro Farmer s Annual Land Report /Page 22 Cash rental rates for Nebraska dryland and irrigated cropland declined in 2015, according to results of an annual farmland market and cash rent survey conducted by Jim Jensen and Roger Wilson, University of Nebraska- Lincoln (UNL) agriculture economists. Decreases ranged from 1% to 14% depending on the type of cropland and district. For instance, the southeast posted declines of 14% and 10% in gravity-irrigated and centerpivot-irrigated cropland, respectively. Pasture and cow-calf pair rental rates continued to set new records for Pasture rental rates ranged for 10% in the southeast to 35% in the northwest reporting districts.