Lower commodity prices have not thwarted the upward trend in farm real estate values, at least not yet. In fact, farmland values in the “corn states” increased by double digits (as high as 22.5 percent for South Dakota) in 2014.
Closer to home, Texas land values are up more than 10 percent; Oklahoma values have risen by more than 9 percent, New Mexico is up more than 8 percent and Kansas rose just over 17 percent. Average across the country shows a 9 percent increase in farm real estate values this year, says Damona Doye, regents professor and Rainbolt Chair in agricultural finance, Oklahoma State University.
Cropland value in Maine dropped by1 percent.
Doye discussed cropland and pasture values and other rural dynamics during the Rural Economics Outlook Conference on the OSU campus in Stillwater. As the value of land increases, the average age of the nation’s farmers also continues to rise.
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She says cropland in some states is valuable real estate. California tops the list at $10,140 per acre. Iowa cropland comes in second at $8,750 with Arizona close behind at $8,320. Several corn states average above $7,000 per acre.
Southwest acreage is less dear. Texas cropland value is $1,680 per acre; Okla. is $1,500; New Mexico comes in at $1,450; and Kansas cropland is valued at $2,260 per acre.
Pasture land value
Pasture land also shows significant variability with highest values in the Northeast. New Jersey values top the list at $13,000 per acre, followed by Delaware at $6,000. Many of the corn states fall in the $2,500 to $3,500 per acre range for pasture land. The Southeast pasture land value is also pricey, ranging from a high of $4,900 in Florida to $2,900 in South Carolina. North Carolina comes in second at $4,760.
The value of pasture land in the Southwest is close to cropland rates—$1,580 in Texas, $1,360 in Okla., only $360 per acre in New Mexico and $1,300 per acre in Kansas. Louisiana pasture land averages $2,500 per acre.
Much of the pasture in the East is improved forage, Doye said, which adds to the value. Much of the Southwest pasture and rangeland remains in native grasses.
Cash rent rates from Oklahoma non-irrigated cropland is all over the board, ranging from $8 per acre to more than $36 per acre. A handful of counties, most in the north central part of the state bordering Kansas, fetch the higher rates. A good number of Central Oklahoma counties fall in the $31 to $35 per acre range.
Pasture cash rent is mostly in the lower ranges, $5 to $14 per acre. Higher rental rates occur to the east where some improved pastures push the average up.
Doye said cropland and pasture land values in Oklahoma have trended upward since 1998 but the trend line for cropland has not been as steep as for U.S. cropland. Oklahoma pasture land values track closely with the U.S. trend.
U.S. cropland value has risen from just under $1,500 per acre in 1998 to $4,000 per acre in 2014. In Oklahoma, cropland value has increased from $500 per acre to $1,500 per acre. Pasture land for both the U.S. and Oklahoma also shows a rise from $500 to $1,500 per acre since 1998.
Cash rental rates in Oklahoma have not followed the same trend as cropland value. “We’ve seen a six-fold increase in cropland value but only a three-fold increase in cash rent rates,” Doye said.
She said Oklahoma non-irrigated cropland value the last two years has been above the long-term trend line, pushing above $1,400 per acre with the trend just above $1,000 per acre.
The Oklahoma pasture land value has been above the long-term trend line since about 2004. “Cash rent is also up but has leveled off this year,” Doye said. However, rental rate for pasture land is not high enough to justify investment for income. “Don’t buy pasture land based on potential for rental income,” Doye said.
She expects rental rates to increase with cattle prices.
She also noted that Oklahoma farmers are “most concerned about the increase in land values relative to when they bought it as it presents a tax challenge.”
Doye also commented on the age of Oklahoma farmers. The average in 2012 was 58.3 years. Almost 60 percent of the state’s farmers fall in the 55 to over 75 category. Less than 20 percent are 45 years or younger.
Farm transition from one generation to another could be an increasingly important issue in the coming years, although Doye says people are living longer and farmers have better technology available, which reduces labor and allows them to continue managing their farms.
Land values may have an effect on transitions, she said, but only if they decide to sell the land.
“Decreasing values influence their nest eggs only if they plan to sell the land, and while I don’t have statistics to back it up, I think that few plan to exit that way.”
She said participants at a recent breakfast meeting agreed. “They plan to leave it to their children and expect that the children will sell.
“The challenge in retiring is whether rent will generate enough income on which to live, and given our relatively low cash rents in Oklahoma, landowners would have to have a pretty sizable operation to generate a decent retirement cash flow.”
She said producers would be wise to talk to their lawyers and tax preparers about strategies for managing asset disposal as they near retirement. “The other challenging part of the process is talking to the heirs about what they plan to do. I think the desire to be fair and equitable to on- and off-farm heirs causes paralysis in many producers as they struggle to figure it out.”