Southwestern Minnesota Farmland Values Decline 8 Percent In 2015

By David Bau

At the end of each year for the last twenty-one years, a survey has been conducted of farm land sales in fourteen southwestern Minnesota counties. Land values had been on a steadily increasing until 2014.  The survey reports bare farm land sales to non-related parties for the first six months of each year.  After reaching record high prices in 2013, the upward trend was broken as prices declined in 2014.  This trend continued in 2015.  Data collected in this survey is available at the county extension offices in Chippewa, Cottonwood, Jackson, Lac qui Parle, Lincoln, Lyon, Martin, Murray, Nobles, Pipestone, Redwood, Rock, Watonwan and Yellow Medicine Counties.  This year the decline across the fourteen counties averaged 8.3%.  Average land values had not declined since 1996 when the average SW Minnesota land prices were $1,175 per acre in 1995 to a high in 2013 to $8,466 then declined in 2014 and again to $6,929 in 2015.

Data from these counties indicate prices decreased from an average of $7,556 in 2014 to $6,929 in 2015 or a decrease of 8.3%.  This is only the second percent decrease as far back as this data has been collect since 1995.  In 2013 was the largest year to year increase of 35.6%.  Farmland prices decreased in ten counties and while increased in four counties including Chippewa, Lac qui Parle, Nobles and Rock from 2014 to 2015.  There was a lot of variability in the numbers from 2014 to 2015.  The largest increase was in Rock County with an increase of 19.2% while Cottonwood experienced the largest decrease of 27.2% for the sales that met the bare farmland to non-related party transaction.

Rock County had the highest average sale price of $11,148 per acre and Lac qui Parle the lowest at $4,765 per acre.  The average Crop Equivalency Rating (CER) for the fourteen counties was 69 with the highest price per CER in Chippewa County at $115.28 and the lowest in Watonwan County at $83.73 per CER.  The assessed values for the second year in a row were higher than actual sales price with the assessed value at 101 percent of the sales price.  Historically the assessed value would be 75 to 80 percent of the sales value.  Ten counties experienced average sales prices that were lower than the assessed values in 2015.  While four counties experienced average sales prices that were more than the average assessed values, the highest percentage was 88.7% in Rock County.

Each year sales vary within a county and be closer to a larger city which would 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 8.3% decrease is well below historical increases of 1 to 2 percent.  For the last ten years there have been large percentage increases.  In the eight years before 2014, prices increased at an annual rate of 15.3%.   There are several factors that have an effect on land values.  Farm incomes, grain prices, interest rates, return on other investments and 1031 exchanges are often mentioned as reasons for the increase.  Farm profits were weaker in 2013 and turned negative in 2014 and 2015 with lower commodity prices.  There were three consecutive years with record farm profits in the Southwest Minnesota Adult Farm Management program, from 2005 through 2007. In 2008 and 2009 profits were good, but not at record levels.  In 2010, 2011 and 2012 profits were record levels.  In 2013 half the farms in adult farm management in Southern Minnesota lost money on corn production.  This loss increased in 2014 and 2015. Many hog and dairy producers experienced a tough year in 2010 many with losses instead of profits with poor prices for their commodities and high feed costs.

If the average farmer had a loss in 2014 and this trend continues in 2015, this would soften local demand for the land from farmers.  Interest rates continue at historically low levels 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 rebounded significantly since its low in March of 2009 to record levels at the end of 2014, but was fairly level in 2015.  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 then 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 farm land sales prices is a combination of all of these factors.  If you would like a copy of the two page document on the trends in farm land sale prices, contact your local county Extension office at any of the fourteen counties listed above.

Which direction will farm land values go depend on several factors?  Supply and demand will determine this. The simple return on investment which is determined by rental rates will determine how competitive farm land is compared to other investments and this will determine a value for farm land.  Corn and soybean prices for 2016 crop are much lower than previous years.  This should have an impact on 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 in a negative way and that will cause a decrease in land values.  The table below indicates average land prices from 2010 to 2015.

Source:umn.edu