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Published August 11, 2014, 10:38 AM

Rental rates, land values increasing

Crop prices have plunged, but cropland values and rental rates continue to rise, a new report says.

By: Jonathan Knutson, Agweek

Crop prices have plunged, but cropland values and rental rates continue to rise, a new report says.

The average rental rate for U.S. nonirrigated farmland is $130 per acre, $5 more than a year ago, and the average price of U.S. cropland is $4,100 per acre, $290 per more than a year ago, according to an annual report from the National Agricultural Statistics Service, an arm of the U.S. Department of Agriculture.

Average rental rates and cropland values rose in North Dakota, South Dakota, Minnesota and Montana, as well. The report included national and state-level statistics, but not county-level numbers.

The increases, primarily a reflection of the multi-year stretch of farm profitability that appears to have ended, aren’t surprising, says Andy Swenson, a North Dakota State University Extension Service farm management specialist based in Fargo.

The newly released averages are based, in part, on leases and transactions negotiated before farm profitability plunged. The recent decline in farm profitability won’t show up fully in rental rates and land values until next year, he says.

David Bau, University of Minnesota Extension ag business management educator based in Worthington, says the 2015 rental rate average might not drop much from the 2014 average.

The yearly averages reflect both single- and multi-year rental agreements.

Some aggressive farmers, who hoped crop prices would remain high, had negotiated 2014 leases at high rates. Those high-end rates are likely to decline next year, pulling down the average, Bau says.

But some expiring multi-year contracts, negotiated several years ago at low rates, could go higher when they’re renegotiated again before the next growing season. If so, that could offset some or all of the anticipated decline in high-end rates, he says.

Flexible rents

Bau recommends farmers and landlords consider flexible rental agreements, which increase how much farmers pay when times are good and reduce what they pay when times are poor.

In many cases, however, landlords aren’t interested in such agreements, preferring the certainty of fixed rates, Bau says.

Future farm profitability will determine the direction of farmland values and rental rates, Swenson says.

For now, though, “I think we’ve peaked. But I don’t think we’re in a bubble where people will take a blowtorch to them,” he says.

Farmland values also are helped because interest rates remain extremely low, limiting the appeal of competing investments such as certificates of deposits, Swenson says.

“Farm profitability and low interest rates are the two big reasons we’ve seen this run-up,” Swenson says. “With interest rates staying this low, farmland is more attractive.”

Strong cattle prices bolster demand for pasture, he notes.

Land value numbers

Here’s what NASS found for U.S. and state-level cropland and pasture values in 2014:

• U.S. — Average cropland value rose 7.6 percent to $4,100 and average pasture value rose 11.1 percent to $1,300.

• North Dakota — Average cropland value rose 17.1 percent to $2,050 per acre and average pasture value rose 29.8 percent to $750 per acre.

• South Dakota — Average cropland value rose 20.8 percent to $3,430 and average pasture value rose 28.9 percent to $860.

• Minnesota — Average cropland value rose 10.9 percent to $4,870 and average pasture value rose 1.3 percent to $1,600.

• Montana — Average cropland value rose 10.9 percent to $987 and average pasture value rose 10.3 percent to $640.

Swenson cautions that state averages can mask big price variations between counties and even within the same county.

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