Land at the edge: Commodity prices declines temper Minnesota-Iowa land values

LUVERNE, Minn. -- Bill Weber is owner and president of Jensen Management Inc., an appraisal company in the heart of Rock County, Minn., a transition area across the divide into Iowa.

LUVERNE, Minn. -- Bill Weber is owner and president of Jensen Management Inc., an appraisal company in the heart of Rock County, Minn., a transition area across the divide into Iowa.

Weber joined the company in 1976 when he was 20 years old, fresh out of business college. He had seen a lot of things -- the tail end of the farm boom, the debt-credit crisis of the 1980s, the recovery in the 1990s,the boom effect of the ethanol age after 2000.

What does he make of today's situation?

"I'm not sure at this stage what it is yet," he says. "I don't think anyone can tell you -- a minor correction, or the start of something larger."

Rock County is the farthest southwest county in the Minnesota -- famously the only one of 87 counties in the state of 10,000 lakes that does not have a natural lake.


The county is named for a rocky outcropping called the Blue Mounds, although much of the county is highly productive ag land. Soils in the southwestern part of the county are wind-deposited loess soils, untouched by glaciers. It's just across the border from Lyon County, Iowa, a transition point where Iowa Corn Belt farmland transitions into the southern Minnesota Corn Belt.

Corn, beans, cattle and hogs are everywhere.

Typical of those assessing the land value equation is Larry Leuthold of Hills, Minn.

He and his son, Collin, operate a 1,000-head custom feedlot just north of the border. They farm 400 acres and market their corn through the cattle to their custom feeding customers. All of the Leutholds' 2008 crop was locked in by their custom feeding customers at $6.20 per bushel.

"I'm happy -- very thankful," Leuthold says with humility. Since then, corn prices have dropped to about $3.50, but yields this year were excellent -- 200 bushels per acre plus. Land values still are high, he says. "I'd say in the $6,000- to $7,000-an-acre range, but none has sold locally. There's talk about values going down a little bit."

High water marks

Many Rock County farms are in the 2,000-acre range, but there still are a lot of 1,000-acre farms and smaller ones that are heavily livestock-oriented.

The county's Blue Mounds name refers to a quartzite outcropping, running underground at varying depths to Jasper, Minn., to a functioning quarry. Off to the side of the ridge is a 2,000-acre marsh basin -- flat and mucky soil with varying quality. Farther east in the county, the soils are glaciated, with tighter heavier soils fairly high quality. Much of the land is tiled for drainage, but some of the systems are old, carrying more acres than the system was intended to handle.


Land values on this border definitely have an influence farther north -- the start of a wavelike effect that can reach into land valuation in central Minnesota, South Dakota and beyond into the newer corn and soybean frontier in the Red River Valley.

Weber's company works in appraisal, sales and management business for farmland roughly in a 20-county area, on both sides of the border.

For many years, land values in Rock County had bounced around in the $2,500- to $3,000-per-acre range. In 2005 and 2006, the prices reached into the $5,000-per-acre level.

Most farmers in this area own about half of the land that they farm.

"That depends on how you define 'ownership,'" Weber says. "Maybe you have a family rental situation where the land isn't available on the open market. This can be father-son, grandpa-grandson or purely unrelated."

The high water mark in Rock County probably was a 77-acre parcel that hit $7,800 per acre last winter. The tract is located about five miles southwest of Luverne, near the town of Beaver Creek.

Jensen Management handled that sale, which was held Feb. 16 at the Luverne Senior Center -- a hot market on a very cold Saturday.

"We probably had 70 people in there," Weber says. "There were four or five that went into the $6,000-per-acre level. As we'd gotten into the week prior to the sale, we were expecting it to hit $7,000 an acre, but we probably never expected it to get that close to $8,000." (A related rural residence was sold separately at about $120,000 -- close to the so-called "normal" at the time.)


Weber says it's impossible to include all of the factors that go into a sale like that one. The eventual buyer of the tract declined to be interviewed for this story. According to other stories, the buyer had lost some land that was taken via condemnation for a needed expansion of the Luverne city airport.

Other factors, of course, were the stunning price of corn at the time -- $5, $6 and even $7 per bushel -- and $15-plus beans.

Prices have come down since then. More recently, quarter of land sold south of Beaver Creek, Minn., at $7,125 an acre, so the price is moderating. A sale in Nobles County, just to the east, was $4,625 in October at public auction. Last April and May, similar ground sold for $5,100 to $5,400. A private treaty 80-acre tract sold for $5,500 in November.

"I'd say we're seeing a 10 (percent) to 15 percent decline," Weber says. "We're seeing mixed results, depending on who's interested and the quality of the property."

The border effect

Numerous factors come into play in this county's land market.

"In southwest Rock County, we see some people bidding on land who were farmers or landowners who had development land on the outskirts of Sioux Falls, S.D.," Weber says.

The Sioux Falls economy still is strong. Landowners took those dollars and reinvested in southwest Minnesota because their operations are close.


Weber says the state line is a definite psychological effect market.

"It tends to start happening down there before it takes off up here," he says.

At the time of the high-water market sale, Lyon County already had had a half-dozen land sales in the $7,000 range. And the next county south of that is Sioux County, where sales in the $8,000 to even $10,000 range are not unheard of.

Why so expensive just a few miles south?

The most competitive areas in Sioux and Lyon counties are driven by "enormous demand" from local farm families, Weber says. The competition is especially fierce because little land ever sells there.

"Right or wrong, they play the old game of averaging things out over the whole operation, and they'll pay what they need to pay to get it," Weber says.

Generally, moods in the area are good. Bean yields were lower than expected in the 45-bushel-per-acre range, but corn yields were a bumper crop -- averaging somewhere around 220 bushels per acre, up even from 2007's impressive 200-bushel average. That takes a bit of the sting out of lower crop prices, but farmers also had to dry their corn from the 19 percent to 20 percent levels, while in the past two years they brought it in at 14 percent to 15 percent moisture and very little drying.

Ron Hook, an area farm management specialist serving 12 counties in northwest Iowa, says land rental rates this year appear to be "all over the board" and dependent upon whether they were set before the collapse in commodity prices. He estimates that rental rates increased 30 percent to 40 percent in 2008, but statistics from surveys won't be available until after the end of the year.


Weber says there is good reason to compare the Iowa and Minnesota prices.

"If we were guaranteed a couple more inches of rain every year up here, we'd compete with them step for step as far as production is concerned," Weber says. "Generally, the internal soil structure isn't quite as tight around here. If we get enough rain, we can compete as far as yields are concerned."

Talkin' about Iowa

Judging farmland value is equal parts art, science and a good dash of sociology

Productivity is scientifically expressed through crop equivalency ratings numbers. The CER numbers are available through the soil survey, most prevalent used in tax assessment starting in the 1970s and early 1980s.

"CER numbers don't necessarily reflect improvements to the farm, in terms of drainage. They factor in things like inherent quality of the soil itself -- roll of the land, or the soil type," Weber says. "You can modify that by erosion control, or by drainage."

The land in the southwestern part of the county -- around towns like Hills-Steen area, for example, have a CER 98 ranking -- "about as high as you're going to find, unless a farm is all Class I land."

Weber says every sale is individualistic.


"Certainly, most of the buyers in Rock County right now are existing farm families, seeking to expand," Weber says. "Whether they judge (land value) from a standpoint of economics, in terms of having a larger operation to spread costs over, or whether it's the next generation coming up -- making sure there's enough land -- I think there is the expectation that farm size will go up. People expect that trend to continue."

"We've also had individuals in the land market that had some profits out of the ethanol industry, and they've reinvested that in land," Weber says.One of the early plants in the area was Agri-Energy Co-op in Luverne, owned by 220 farmers, in 1998. Of course, the downturn in the ethanol fortunes is a factor in moderating land values.

It was inevitable

Dan Block, manager of Rock County Implement, the local John Deere dealer in Luverne, a part of the C&B Operations group, based in Gettysburg, S.D., says 2008 has turned out to be about as good a year as 2007, and he sees great optimism for 2009.

"I think in most cases, if you put a '4' back in front of this corn (price), and maybe an '8' or '9' in front of the beans, I think they're feeling optimistic," Block says. "I think that '7' for the corn just ruins everything."

Block says he's been chatting with a farmer who had dealt on a combine for some time, but now is changing his mind.

"He said he hadn't marketed his corn," Block says. "I told him I thought a lot of corn wasn't marketed. He said, 'No, I'm talking about '07 corn.' Well, I can't help him on that because we saw $5 corn, $6 corn for a long time and some $7 corn last summer."

For many years, people would have been happy selling soybeans at the prices they were selling corn for last summer. Everyone was expecting a correction, expecting the value of corn to come down, with a resulting impact in rents, Weber says.

"If you take the family situations out of things, I think you saw some long-term rents in the $130- to $150-an-acre range in 2008. And we broke the $200-an-acre mark," Weber says. Nobles County rents went as high as $300 in some cases, "but at the current prices, that will not work."

Rental rates are based more on the prospect for crop prices than land values are.

"I don't know of anyone that's buying land for the purposes of a return based on cash rent," Weber says. "The guide they're going to rely on most is what the neighbor got."

As commodity prices have declined, farmers have dealt with the increased input costs and soon will work them into the 2009 land rental rates.

"Initial discussions have been going on for the last couple of months and will go on to the end of the year," he says.

As a farm manager, Weber gets a lot of questions this time of year.

Landlords want to get as good a return as possible, but one of the goals of land ownership shouldn't be bragging rights at the coffee shop, he says.

"My goal is to find a tenant that produces a fair return to you but also takes care of your asset. If the rents are too high, can they be a good steward of the land or do they have to mine the farm to pay for it?"

Overarching, global questions hold the real answers to what will happen to land rents and values.

Weber, active statewide in Republican politics, thinks farmers will be better off with fewer wrenching price swings if the federal government comes up with a comprehensive energy policy -- multipronged and focused on drilling and refinery capacity. There needs to be continued research on alternative fuels. Farmers will fare better if those solutions include corn-based ethanol.

"The government doesn't respond until there is a crisis," Weber says. "We as a people need to demand long-range solutions."

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