WORTHINGTON — A survey of farmland sales in 14 counties of southwest Minnesota shows farmland values have decreased .2% in the last year. The survey, conducted in each of the past 25 years, reports bare farmland sales to non-related parties for the first six months of each year.
Land values had steadily increased in southwest Minnesota until 2014. After reaching record-high prices in 2013, the upward trend was broken as commodity prices declined in 2014 and continued down through 2017. Farmland values then increased in 2018 and remained constant in 2019.
Southwest Minnesota land prices peaked at $8,466 per acre, then declined to $6,340 in 2017 before increasing in 2018 to $6,589. In 2019, land prices declined slightly to $6,576 per acre average.
The largest year to year increase was in 2013, at 35.6%. Farmland prices decreased in seven counties and increased in seven counties including Cottonwood, Lincoln, Lyon, Martin, Pipestone, Rock and Yellow Medicine from 2018 to 2019.
There was a lot of variability from 2018 to 2019. The largest increase was in Martin County, with an increase of 13%, while Watonwan County experienced the largest decrease at 18.5% on bare farmland sales that were non-related party transactions.
Rock County had the highest average sale price of $8,851 per acre, and Lac qui Parle the lowest at $5,049 per acre. The average Crop Equivalency Rating (CER) for the 14 counties was 69, with the highest price per CER in Chippewa County at $103.66 and the lowest in Lincoln County at $77.23 per CER. The assessed values were lower than actual sales price with the assessed value at 96.6% of the sales price. Historically, the assessed value is 75% to 80% of the sales value.
Five counties experienced average sales prices that were lower than the assessed values in 2019. While nine counties experienced average sales prices that were more than the average assessed values, the lowest percentage was 89.86% in Martin County.
Each year sales vary within a county land location could have an effect on these average values from year to year. The quality of the land sold within a county may be a factor in the wide swings in the prices from year to year in individual counties. The number of sales in each county varies greatly from year to year. The .2% decrease is below historical increases of 1% to 2%.
For the last 10 years, there were large percentage changes. In the eight years before 2014, prices increased at an annual rate of 15.3%. But from 2014 to present, the average change has been a 4.8% decline.
Several factors impact land values, from farm incomes and grain prices to interest rates, return on other investments and 1031 exchanges. Farm profits were weaker in 2013 and turned negative in 2014 with lower commodity prices. There were good to record profits in the Southwest Minnesota Adult Farm Management program from 2005 through 2012. During 2013, half the farms in the program lost money on corn production. These losses have continued through 2019. Many hog and dairy producers experienced a tough year in 2019, many with losses due to poor prices for their commodities and high feed costs.
If the average farmer had losses from 2014 through 2019, this would soften local demand for farmland. Interest rates have started to slowly increase and land rental income is comparable or higher than what an investor can earn from treasury bills, bonds or certificates of deposit at financial institutions. The stock market increased in 2019. The 1031 exchange is for farmers or property owners who have land in an area of increased value due to location to city or development and, rather than pay taxes on large gains from the sale of land, they purchase like property or other farmland at a more reasonable price elsewhere, which increases rural farmland demand.
The reason for increases or decreases in farmland sales prices is a combination of all of these factors.
For a copy of the two-page document on the trends in farmland sale prices, contact a county Extension office at any of the 14 participating counties.
Which direction farmland values will go depends on several factors, most notably supply and demand. The simple return on investment, which is determined by rental rates, will determine how competitive farmland is compared to other investments, and this will determine a value for farmland.
Corn and soybean prices for the 2019 crop are still at lower levels than previous years. This should impact profits, farm rental rates and eventually farmland values.
The government programs have an influence as well through the farm bill. If interest rates rise or farm rental rates fall, the value of land is sure to be affected negatively, and that will cause a decrease in land values.