Price increases slowing for farmland?

By David Bau, University of Minnesota Extension

I recently completed the annual survey of the “bare” farmland sales for the first six months of 2007 for fourteen counties in southwestern Minnesota.

The average farmland sales have been on a steady increase since 2000 and have declined only once since 1996, with a slight decrease from 1999 to 2000 in average sale prices per acre. For southwest Minnesota, the average-per-acre sale price increased from $2,574 in 2006 to $2,849 in 2007. This was an average increase across southwest Minnesota of 11.5 percent.

Three counties experienced a decrease in prices from 2006 to 2007; the other 11 increased and Lincoln County experienced the largest increase, 47.8 percent. These sales are bare farmland with no improvements (buildings), which should be a good indication of the value of farmland in each county.

Double-digit increases have occurred on average for the last five years. The highest percentage increase occurred in 2004, with an increase of 16.5 percent from 2003 to 2004. The increase in 2005 was next at 14.4 percent followed by 2006 at 13.9 percent. In 2007 prices increased an average of 11.5 percent.

Price changes and percentage changes can be misleading, since the quality of land that is sold in one year may not compare equally with the quality of land sold in a previous year.

Whether these double-digit annual increases in farmland values will continue will be determined by several factors: interest rates charged for borrowing money, savings rates, farmland rental rates, other investment opportunities, and what the new government program will provide. Other factors include whether the current high grain prices continue, tax law changes and profitability of farming.

This was the first year in three years where land values in any county declined, which might indicate the rapid farmland sales price increases might be slowing down.

(David Bau is an ag business management educator with University of Minnesota Extension.)