Will falling grain and cotton prices take a toll on land values and cash rental rates in the Mid-South states?

At the height of the run-up in grain prices in 2012 and 2013, the national average land value for agricultural cropland increased 12 percent, from $3,350 per acre to $3,810, according to USDA’s National Agricultural Statistics Service.

Some Corn Belt states, such as Illinois and Indiana, saw similar increases in farmland values to those shown nationally, at much higher overall prices, notes Bryon J. Parman, assistant Extension professor, agricultural economics, at Mississippi State University.

“Illinois, between 2012 and 2013, saw land values increase from $6,300 per acre to $7,190 per acre or roughly 12.3 percent, while Indiana had an increase of nearly 13 percent from $6,448 per acre to $7,430 per acre for average farmland during that same period,” said Parman, who has begun compiling similar statistics for agricultural land values and cash rents for the state of Mississippi.

Parman surveyed lenders across Mississippi to gather the information for 2012-13. Participating lenders represented about half of all agricultural land sales taking place in any one year. He’s now compiling a report for sales that occurred in 2014.

Lower prices

“Mississippi cropland values tend to be lower than some of their Corn Belt counterparts,” he writes in the report for 2013. “The highest sales for top-quality irrigated Delta soils neared $5,500 per acre in 2013 and averaged closer to the $4,000-per-acre mark.

“For both 2012 and 2013, quality dryland Delta crop soils were selling for approximately $600 per acre less than flood-irrigated fields, with the poorest-quality Delta cropland soils averaging $1,200 per acre below those being flood/furrow irrigated.”

The cropland values report is separated into irrigated and non-irrigated, soil type and soil quality characteristics. Those include Delta, Brown Loam/Coastal Plain and Black Belt soils. (Small tract sales, assemblage sales and sales with a change in highest and best use have been excluded from the statistics.)

“Quality dryland soils in the Brown Loam and Black Belt areas sold for around $750 per acre less on average than Delta dryland quality soils,” says Parman. “However, 2012 sales show that the value spread between Brown Loam and Delta area dryland crop soils to be much smaller at nearly $200 per acre.”

Between 2012 and 2013, statewide average sales prices for flood/furrow-irrigated, quality dryland and good or fair dryland soils increased, he said. “Flood/furrow-irrigated soils increased 14.5 percent while dryland soils saw more modest increases, with a 5.5-percent increase for quality dryland soils and a 4.2-percent increase for good or fair dryland soils.”

Pivot-irrigated soils saw no change in the statewide average sales price from 2012 to 2013; however, fewer statewide sales in this category may obscure significant differences.

What’s the outlook for the 2014 numbers?

Downward pressure

“Lower row-crop commodity prices toward the end of 2014, combined with the expectation for low-crop commodity prices in 2015, suggest downward pressure on land values in Mississippi and throughout the United States,” says Parman.

“Interest rates on both long- and short-term loans are expected to rise in the future, increasing the downward pressure on land values as principles must adjust to compensate for higher interest rates.”

Surveys from the second quarter by the 8^th Federal Reserve District show land values either leveling off or slightly declining from previous quarters and years. (The survey area includes the northern half and Delta region of Mississippi, all of Arkansas, the western portions of Kentucky and Tennessee and the southern portions of Illinois, Indiana and Missouri.)

“A period with low agricultural land sales would also indicate a drop in agricultural property values,” says Parman. “If that happens, landowners will be reluctant to sell for prices below those seen in recent years, while renters will anticipate low or negative returns at current prices.”

In the short term, he said, cash rents for 2015 are expected to be near those of 2014 and 2013, “as many of those contracts were negotiated in advance, and producers are reluctant to relinquish their rights to parcels they are currently farming.

“In the long run, should commodity prices remain low, cash rental rates will likely be reduced to reflect the change in overall returns to farmland.”

For more information on the Agricultural Economics Department at Mississippi State University, visit http://www.agecon.msstate.edu/.