Mixed bag on land values, rental rates

Upper Midwest farmland values and rental rates generally held steady in 2020, with some showing small increases, some staying the same and some dropping slightly, according to two new annual reports from the U.S. Department of Agriculture's National Agricultural Statistics Service, or NASS.

Though generalizing is risky — there are variances in every state — North Dakota and Montana rental rates and farmland values held up best on average, with Iowa, Minnesota and Wisconsin seeing the most declines. South Dakota had mixed results, the reports found.

The reports have too many numbers to summarize fully. But nationwide, the average nonirrigated cropland rental rate fell to $126 per acre from $127 per acre in 2019, while the average pasture rental rate held steady at $13 per acre. Also nationally, the average value for all cropland (both irrigated and irrigated) was $4,100 per acre, unchanged from the previous year, while the average for pasture held steady at $1,400 per acre.

Increases in rental rates and farmland land values in some Southern states — for example, the average land value in South Carolina rose 3.4 % in 2020 from the previous year — helped to offset decreases in some parts of the country.

Nationwide, more states showed decreases than increases, said Daniel Bigelow, assistant professor in Montana State University's Department of Agricultural Economics and Economics, who talked with Agweek with about the reports.

Top corn- and soybean-producing states appear to be hit the hardest, reflecting such factors as reduced demand for ethanol and the trade war with China. Dairy production has been hit, too, hurting pasture values in major dairy states, he said.

He also pointed out that land values and rental rates that appear to be holding steady actually are declining slightly when adjusted for inflation.

"No change in nominal value, which is what NASS publishes, is actually a small change in real value," Bigelow said.

Changes in Upper Midwest states in 2019-20 included both increases and decreases in the same state.

For instance, the average Montana nonirrigated cropland rental rate rose to $28 per acre this year from $27 per acre in 2019, even though the average value of cropland in the state fell to $1,030 per acre this year from $1,040 per acre the previous year. That means farmers in the state paid a little more to rent land while also paying a little less to buy land.

The average pasture rental rate in the state rose to $6.70 per acre from $6.60 per acre in 2019, while the average value of pasture in the state held steady at $680 per acre.

Montana has a relatively small number of transactions, producing a small sample size that may not provide particularly meaningful data, said Kate Binzen Fuller, associate professor/extension specialist in MSU's Department of Agricultural Economics and Economics.

Bigelow and Fuller also noted that the reports are based on farmers' perceptions of rental rates and land values, not actual observed transactions.

Fuller said she hadn't expected to see increases in Montana during a year of poor crop prices and limited profitability.

"I was a little bit surprised that we did see an increase," she said. "There aren't a lot of bright spots right now in the ag economy."

The rental rates reflected in the report were negotiated some time ago and aren't necessarily reflective of the decisions being made now. But the state generally had a good production year in 2019, which apparently helped to hold up rental rates and land values, Fuller said.

North Dakota's average nonirrigated cropland rental rate rose to $69.50 per acre this year from $69 per acre in 2019, with the average rental price for pasture rising to $18 per acre from $17.50 per acre the previous year. The average per-acre value for cropland rose to $1,930 per from $1,920 in the previous year, with the average per-acre value for pasture dropping to $790 from $820 the previous year.

Put differently, farmers in the state paid slightly more to both buy and rent cropland, while also paying a little more to rent pasture but paying a little less to buy it.

Darin Jantzi, NASS state statistician, said many factors, including weather and commodity prices, influence land values and rental rates, which complicates assessing why they rise or fall.

Examining the five-year history for land values and rental rates can give a fuller, more accurate understanding of them, he said.

For instance, though the average per-acre pasture rental in North Dakota fell to $790 this year from $820 in 2019, the 2020 figure exceeded the 2018 average of $776 per acre and is close to the $804 average in 2017 and $794 in 2016. In other words, the 2020 average is nearly unchanged from the 2016 average.

The NASS reports don't tackle why average farmland values and rental rates in the Upper Midwest didn't drop across the board during a year that brought poor crop prices, uncooperative weather and limited profits. But agricultural economists have pointed to several factors:

• Unappealing returns from competing investments such as certificates of deposit can make farmland more attractive financially than it otherwise would be.
  
• Some farmers remain financially sound and want to expand by buying or renting land.
• Land prices rose relatively slowly in parts of the Upper Midwest, especially North Dakota, Montana, northwestern Minnesota and western South Dakota, during the ag boom of 2008-12. As a result, land values there have less room to fall now. In contrast, Iowa and parts of Minnesota saw rapid increases during the ag boom, creating greater potential for declines now.

Rental rates tend to be "stickier" — or less prone to fluctuations — than many people realize, which probably helps to explain why the rates have held relatively steady, Bigelow said.

Here's a look at what the reports found for Iowa, Minnesota, South Dakota and Wisconsin.

Iowa: The average per-acre cropland value fell to $7,170 from $7,260 in 2019, with the average per-acre pasture value dropping to $2,690 from $2,720 last year. But the average per-acre nonirrigated cropland rental rate held steady at $230, while the average per-acre pasture rental rate fell to $54 from $59 last year.

Minnesota: The average per-acre cropland value dipped to $4,800 from $4,810 the previous year, with the average per-acre price for pasture declining to $1,680 from $1,700 in 2019. But the average per-acre rental rate for nonirrigated cropland held steady at $163, even though the average per-acre pasture rental rate fell to $24 from $28 in 2019.

South Dakota: The average per-acre cropland value fell to $3,030 from $3,130 the previous year, though the average per-acre value of pasture held steady at $1,050. The average per-acre rental rate for nonirrigated cropland fell to $116 from $118 in 2019, though the average per-acre rental rate for pasture held steady at $26.

Wisconsin: The average per-acre cropland value fell to $4,770 from $4,850 in 2019, with the average per-acre value of pasture dropping to $2,250 from $2,310 last year. The average per-acre rental rate for nonirrigated cropland fell to $138 from $145 in 2019, with the average per-acre rental rate for pasture held steady at $135.

Information in the NASS reports comes from about 80,000 to 90,000 U.S. ag producers surveyed in June, said Jantzi, who thanked the farmers for participating in what has been a particularly challenging summer.

To see the two reports: https://quickstats.nass.usda.gov/results/58B27A06-F574-315B-A854-9BF568F17652#7878272B-A9F3-3BC2-960D-5F03B7DF4826 and https://downloads.usda.library.cornell.edu/usda-esmis/files/pn89d6567/js957404w/hq37w9890/land0820.pdf.