Farm Progress

Farm profit, interest rate uncertainties weigh on land values

If low commodity prices continue without relief, market experts say current land values won’t be sustainable.

November 30, 2017

4 Min Read
PRICE UNCERTAINTY: Lower 2017 yields, slim to negative farm profits and tighter credit could all weigh on Upper Midwest land values going forward, market experts say.David L. Hansen, Minnesota Agricultural Experiment Station, University of Minnesota

By Liz Morrison

Marginal farm profits could start pulling farmland values down again after the current pause, some market experts warn.

Land markets seem to have stabilized, says Andrew Swenson, North Dakota State University Extension economist. However, going forward, there is still downward price pressure.

Tight land supplies and record-breaking yields in 2016 buttressed cropland values in 2017, Swenson says. “That really helped us. Instead of softening further, land values held steady,” he says. However, lower 2017 yields, slim-to-negative farm profits and tighter credit could all weigh on land values going forward, he says.

Meanwhile, interest rates are likely to rise, dampening buyers’ appetite for land, Swenson says.

“And if more land comes on the market, we’ll see further softening. I suspect values will drop in 2018 — maybe about 5%,” he says.

Tight supplies are propping up land prices, agrees Jack Davis, South Dakota State University Extension farm business management specialist. “The returns from farming aren’t there to support these values,” he says, adding that in regions hit by the 2017 drought, it will be a very tough year as far as net farm incomes.

“We can’t take too many more years of these low crop prices,” says Grand Forks, N.D., farm manager John Botsford. “If commodity prices continue without relief, current land values probably won’t be sustainable.”

Related:Farmland values stabilizing after multiyear slide

Negative profit margins are causing some producers to whittle away at their equity, says Brian Gatzke, an appraiser from Brookings, S.D., who also farms. He won’t be surprised to see land values tick lower.

“As my dad says, 2018 will be a hard year to make money,” he adds.

Others are more sanguine. Broker Chuck Sutton of Sioux Falls, S.D., is not expecting an upturn in land values in 2018. “You’d need a change in farm economics for that. I look for continued firmness. There’s no reason to think the sky is falling, and there’s still a lot of optimism.”

Sampling of land prices
Market experts share land prices they saw during the fall of 2017.

• Kevin Pifer, Pifer’s Auction and Realty, Moorhead, Minn. In the Red River Valley, where yields have been excellent the past two years, good land sold in the fall for $3,800 to $5,200 per acre. In western North Dakota, two quarters of cropland in Dunn County sold in October for $2,250 per acre, up about 5% from the low. Near Mobridge, S.D., a 1,186-acre farm sold in mid-October for $1,770 per acre, also up about 5% from the bottom.

John Botsford, Red River Land Co., Grand Forks, N.D. Several fall sales in Polk, Trail and Grand Forks counties topped $5,000 per acre.

Guy Miller, Miller Realty, Breckenridge, Minn. Good cropland in the region is selling for $4,000 to $5,000 per acre. Two excellent farms in Wilkin County sold for $4,278 per acre and $4,455 per acre. Across the river in Richland County, a 320-acre farm in a very strong neighborhood brought $5,257 per acre.

Bob Hansen, Bob Hansen Land and Auction, Salem, S.D. Good cropland in east-central South Dakota is selling for $5,500 to $7,500 per acre. In a typical fall sale, an 80-acre parcel of cropland in Hanson County sold for $6,800 per acre.

Chuck Sutton, Chuck Sutton Auction, Sioux Falls, S.D. In late October, a prime 153-acre farm in Moody County, in southeastern South Dakota, sold in two parcels for an average of $10,700 per acre. Other recent sales in the region topped $9,000 per tillable acre.

Roger Cymbaluk, Basin Brokers, Williston, N.D. Fall cropland prices ranged from $1,200 to $2,200 per acre and grassland from $550 to $800 per acre.

Gerry Dee, Compeer Financial, Rochester, Minn. In September, a 160-acre farm in Mower County, on the Iowa state line, sold for $9,400 per acre.

Charles Wingert, Wingert Realty and Land Services Inc., Mankato, Minn. The best farms sold for $7,800 to $8,800 per acre in the fall. In very strong agricultural neighborhoods, farms are fetching $9,000 per acre. But less-desirable farms are being discounted $1,000 to $2,000 per acre.

Eldon Krull, Northwestern Farm Management, Marshall, Minn. A recent Lyon County land sale brought more than $8,500 per tillable acre.

Leon Carlson, Upper Midwest Management, Olivia, Minn. Good cropland is trading between $7,500 and $8,000 per acre. Top sales in Renville and Kandiyohi counties in the fall were around $9,000 per acre.

Morrison writes from Morris, Minn.

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