Mississippi Agricultural Land Values Sales Report: 2015 This report is intended to provide producers, lenders, and others involved in the agricultural industry a guide for benchmarking land values and cash rental rates for crop and pastureland across Mississippi. This report is based on historical data looking at the movement of land prices prior to January 2015.
Cropland
According to USDA data, national averages for agricultural land trended upward between 2011 and 2014, averaging between 7 percent and 8 percent appreciation per year. The 2013–14 change in agricultural land values was largest in the Northern Plains region, including Kansas, Nebraska, and the Dakotas, where the year’s appreciation approached 23 percent. Most Corn Belt states experienced appreciations around 8 percent during that same period, with the exception of Iowa, which saw agricultural land values increase around 10.5 percent. The Delta states, including Arkansas, Louisiana, and Mississippi, had an average annual appreciation of around 3.5 percent for 2011–14, less than half the national average annual appreciation in agricultural land. Lower still was the appreciation in Mississippi agricultural land values, where 2011–14 saw an appreciation rate at between 1 percent and 3 percent annually. In terms of overall average dollar values, farm real estate averaged $2,950 per acre nationally, $6,370 per acre in the Corn Belt, $2,640 per acre in the Delta region, and $2,340 per acre in Mississippi alone in 20141. Examining previous tract sales gives a clear picture of agricultural cropland value movement in Mississippi. Actual sales data was collected by Mississippi State University for cropland in Mississippi and stratified by region, by dryland or irrigated, and by irrigation method for 2012–14. Sales where the highest and best use had changed, or homestead-type properties where the dwelling was the largest share of overall value, were excluded. Sales from 2015 are approximated from a survey conducted by Mississippi State University in April 20152. Tables 1–6 show average sales prices from 2012 to 2014 for irrigated and nonirrigated cropland in Mississippi in and out of the Delta region. Irrigation is further divided into flood-irrigated or pivot-irrigated parcels. USDA Land Values 2014 Summary. August 2014. http://usda. mannlib.cornell.edu/usda/nass/AgriLandVa//2010s/2014/AgriLandVa-08-01-2014.pdf 2 Mississippi Agricultural Land Values, Cash Rents, and Lending Conditions: Spring 2015. Bryon Parman and Andrew Louis. MSU Extension Publication 2889. 1
Table 1. Mississippi Delta Area: 2014 Mean
Min
Max
N
Pivot-irrigated
4,880
4,102
6,500
6
Flood-irrigated
4,284
2,481
6,950
38
Nonirrigated
3,104
1,200
5,350
39
Table 2. Mississippi Delta Area: 2013 Mean
Min
Max
N
Pivot-irrigated
3,628
1,875
4,280
19
Flood-irrigated
3,996
2,762
5,450
54
Nonirrigated
2,852
1,250
5,000
39
Table 3. Mississippi Delta Area: 2012 Mean
Min
Max
N
Pivot-irrigated
3,569
2,000
4,800
15
Flood-irrigated
3,421
2,189
5,000
53
Nonirrigated
2,497
1,000
3,966
68
Table 4. Mississippi Non-Delta Area: 2014 Mean
Min
Max
N
Pivot-irrigated
*
*
*
*
Flood-irrigated
*
*
*
*
2,473
1,032
6,000
44
Nonirrigated *Not enough data
Table 5. Mississippi Non-Delta Area: 2013 Pivot-irrigated Flood-irrigated Nonirrigated
Mean
Min
Max
N
*
*
*
*
*
*
*
*
2,353
1,358
4,000
51
*Not enough data
Table 6. Mississippi Non-Delta Area: 2012 Mean
Min
Max
N
Pivot-irrigated
*
*
*
*
Flood-irrigated
*
*
*
*
2,494
957
4,500
51
Nonirrigated *Not enough data
From 2012 to 2014, the lowest valued cropland across Mississippi was nonirrigated or dry cropland outside the Delta region. As recently as 2012, non-Delta dry cropland was selling for roughly the same dollar-per-acre price as Delta dry cropland. However, the 3-year period captured in the tables shows no real movement in dry cropland outside of the Delta, while dry cropland in the Delta region increased nearly 19.5 percent during that same period. Another important note is that there were very few irrigated non-Delta cropland sales in the 3-year period captured in this report and, thus, no averages are reported. Within the Delta region, all three cropland categories appreciated during the 3-year period shown. Pivot-irrigated cropland in the Delta increased nearly 25 percent, while flood-irrigated cropland appreciated almost 21 percent. Dry cropland appreciated more modestly, at approximately 10 percent. One interesting observation regarding cropland values during the period spanning 2012–14 concerned the widening price gap between dry and irrigated cropland. In 2012, irrigated cropland on average was 29 percent higher in value than dry cropland in the Delta region. In 2014, that difference was closer to 37 percent. While this may be simply a function of a relatively short sampling period, it could also indicate that productivity/value growth in irrigated cropland outpaced its dry counterpart. Statewide averages for irrigated and nonirrigated cropland in Mississippi are shown in Tables 7–10. While Tables 7–9 are based on actual sales data throughout the state, Table 10 is based upon lenders’ survey data from April 2015. Flood- and pivot-irrigated sales were averaged since the survey data from 2015 was an average of all irrigation types. Survey data from 2015 shows a substantial drop in irrigated cropland values from 2014 and a modest gain in dry cropland values. Lenders described irrigated cropland in 2015 averaging $3,700 per acre, while 2014 actual sales averaged $4,365 per acre. That is an approximately 18 percent drop in the average from the price land was selling the year before. Dry cropland statewide was mostly flat, appreciating at a meager 1.5 percent. However, caution must be taken when comparing the actual sales prices from 2012 to 2014 and the observed survey prices from 2015, as the final sales prices from 2015 may differ somewhat once that data becomes available. Table 7. Statewide Average: 2012 $/Acre Irrigated Nonirrigated
Mean
Min
Max
N
3,519
2,000
5,000
17
919
4,500
158
2,769
Table 8. Statewide Average: 2013 $/Acre Mean
Min
Max
N
Irrigated
3,898
2,762
5,450
76
Nonirrigated
2,624
1,250
5,000
85
USDA Land Values 2014 Summary. August 2014. ISSN: 1949-1867. 1 AU = 1,000 lb. 1.2AU = 1,200 lb or the equivalent of 1 cow/calf pair.
3 4
Table 9. Statewide Average: 2014 $/Acre Mean
Min
Max
N
Irrigated
4,365
2,481
6,950
44
Nonirrigated
2,769
1,032
6,000
83
Table 10. Statewide Average: 2015 $/Acre (Survey Data) Mean
Min
Max
N
Irrigated
3,700
2,500
4,800
*
Nonirrigated
2,810
1,500
4,300
*
*Not enough data
Pasture/Grazing Land
Nationally, pastureland values averaged $1,300 per acre in 2014, which was an 11.1 percent increase from 2013’s average of $1,170 per acre. Regionally, the highest value pasture ground on a dollars-per-acre basis in 2014 was the Southeast, including Alabama, Florida, Georgia, and South Carolina; pastureland in this region averaged $3,790 per acre. The lowest cost region on a dollar-per-acre basis in 2014 was the Rocky Mountain region, where pastureland averaged $490 per acre. The Delta region states, including Arkansas, Mississippi, and Louisiana, averaged $2,270 per acre, a 3.7 percent increase from 20133. Statewide sales data for Mississippi alone in 2014 showed a pastureland value of $2,447 per acre (Table 11). This was nearly 25 percent more than the 2013 state average pastureland value of $1,985 per acre. With a stocking rate recommendation from Mississippi State University being 1.2 AU/2 acres4, the land cost to run a cow/calf pair increased to $4,078. Table 11. Mississippi Pastureland Values $/acre for 2012, 2013, 2014 Year
Mean
Min
Max
N
2014
2,447
916
4,955
133
2013
1,985
1,200
2,900
69
2012
2,197
970
3,850
90
Surveys of lenders from April 2015 revealed no significant change from the sales values for pastureland in 2014. Survey results indicated a pastureland value of $2,455 per acre. While Mississippi and other Delta states have much higher pastureland values than many of the Plains states or Mountain states, the cost of grazing in Mississippi continues to be relatively inexpensive. In some of the Mountain states, the stocking rate approaches 20 acres per cow/calf pair. At $480 per acre, that would make the land cost of grazing a pair $8,167, and that land may only be available to graze 5 months per year. This is significantly above Mississippi’s $4,078 per pair, which may be grazed year-round.
Profitability Cropland
Tables 12–14 are a general profit/loss matrix for Delta, top-quality, irrigated cropland for 2014. The three primary crops for Mississippi in that year are shown (corn, soybeans, and cotton). The operating costs per acre are from the 2015 MSU crop budgets, which use data from 2014.
For each crop, the cropping method assumed is one of the more common practices employed. A land payment is included in the cost for each crop and is estimated using Table 1, the average cost of flood-irrigated land in the Delta. A 20 percent down payment is assumed, along with a 4 percent interest rate on a 15-year loan.
Table 12. Corn Profitability Table $/Bu
Yield in Bu/acre
3.25
3.5
3.75
4.25
4.5
4.75
5
125
-622
-591
-560
-497
-466
-435
-403
150
-541
-503
-466
-391
-353
-316
-278
175
-460
-416
-372
-285
-241
-197
-153
200
-378
-328
-278
-178
-128
-78
-28
225
-297
-241
-185
-72
-16
40
97
Table 12 assumes stale seedbed, BtRR, 8-row 38”, 185 bu yield goal, furrow-irrigated, 13 ac-in. Operating costs excluding land $677.43/acre. Table 12 uses 2014 data for Mississippi State Cropping Budgets. Table includes a land payment of $351/acre, which is the average price of topquality irrigated Delta farm ground, assuming a 4% interest rate and a 20% down payment with a maturity of 15 years.
Table 13. Soybean Profitability Table $/Bu
Yield in Bu/acre
9.5
10
10.5
11
11.5
12
12.5
35
-446
-428
-411
-393
-376
-358
-341
45
-351
-328
-306
-283
-261
-238
-216
55
-256
-228
-201
-173
-146
-118
-91
65
-161
-128
-96
-63
-31
2
35
75
-66
-28
10
47
85
122
160
Table 13 assumes early-planted, RR, stale seedbed, 12R 30, furrow-irrigated, 9 ac-in, target yield 65 bu/acre. Operating costs excluding land $427.82/acre. Table 13 uses 2014 data for Mississippi State Cropping Budgets. Table includes a land payment of $351/acre, which is the average price of topquality irrigated Delta farm ground, assuming a 4% interest rate and a 20% down payment with a maturity of 15 years.
Table 14. Cotton Profitability Table $/lb
Yield in lb/acre
0.5
0.6
0.7
0.8
0.9
1
1.1
1000
-780
-680
-580
-480
-380
-280
-180
1100
-730
-620
-510
-400
-290
-180
-70
1200
-680
-560
-440
-320
-200
-80
40
1300
-630
-500
-370
-240
-110
20
150
1400
-580
-440
-300
-160
-20
120
260
Table 14 assumes 12R-38, solid, conservation tillage B2RF variety, furrow-irrigated, 10.5 ac-in., 1100 lb/acre target yield. Operating costs excluding land $929.36/acre. The profit/loss for cotton is based on lint sales only; sale of seed is NOT included. Table 14 uses 2014 data for Mississippi State Cropping Budgets. Table includes a land payment of $351/acre, which is the average price of topquality irrigated Delta farm ground, assuming a 4% interest rate and a 20% down payment with a maturity of 15 years.
In 2014, the U.S. average corn price was $4.11 per bushel, the average soybean price was $12.48 per bushel, and the average cotton price was $0.635 per pound. Of the three crops shown, on average, only soybeans covered both operating costs and a land payment based upon 2014 sales prices. It is certainly the case that some Mississippi farmers were able to produce corn, soybeans, and cotton at a lower cost than what is estimated by the MSU budgets. It is also true that there are many more cropping practices or methods employed around the state than the one shown for each crop. However, many farmers in the Delta and around the state produce at a higher cost than the budgets estimated. Therefore, it is reasonable to conclude that a significant portion of Mississippi farmers saw negative returns to land in 2014—especially corn and cotton producers.
Pastureland
The cattle market had a record 2014 as prices for weaned calves across the country were around $300 per hundredweight. Based on a sales price in 2014 for weaned calves near $3 per pound, and an average pastureland price of $2,447, returns per acre over operating costs plus a land payment in Mississippi averaged $72 per acre5. Since 2014, cattle prices have declined substantially, and the returns to land in 2014 set a high mark that may not be reached again for some time.
5
Conclusions and Outlook
Crop commodity prices in 2014 were much lower than in previous years. However, the momentum of land values trending upward continued to carry cropland sales prices higher during the year. As a result, returns to land and profitability based on a 2014 sales price were low and, in many cases, negative. Early survey data from 2015 revealed a halt to the upward sales price trend for cropland. However, actual sales data from 2015 will determine exactly what impact 2 years of low commodity prices have had on quality cropland values. The outlook moving forward for cropland sales prices hinges on how long commodity prices stay low, how long input costs stay high, and what happens with interest rates moving forward. Another low crop commodity price year may start a market correction for land sooner rather than later. Pastureland prices saw a sharp spike in value in 2014. However, the survey results suggest this movement upward may not have carried into 2015 as cattle prices failed to maintain their record high of $300 per hundredweight for long. Because the market did not stay near its record high, it probably will not require a substantial correction for pastureland values to settle where they will remain for the foreseeable future.
Total specified expenses for cow/calf producers is based on MSU cow/calf budget in 2014, which was $1,027/cow.
The information given here is for educational purposes only. References to commercial products, trade names, or suppliers are made with the understanding that no endorsement is implied and that no discrimination against other products or suppliers is intended. Publication 2940 (POD-02-16) By Bryon Parman, Assistant Extension Professor, and Louis Holbrook, graduate student, Agricultural Economics.
Copyright 2016 by Mississippi State University. All rights reserved. This publication may be copied and distributed without alteration for nonprofit educational purposes provided that credit is given to the Mississippi State University Extension Service. Produced by Agricultural Communications. We are an equal opportunity employer, and all qualified applicants will receive consideration for employment without regard to race, color, religion, sex, national origin, disability status, protected veteran status, or any other characteristic protected by law. Extension Service of Mississippi State University, cooperating with U.S. Department of Agriculture. Published in furtherance of Acts of Congress, May 8 and June 30, 1914. GARY B. JACKSON, Director
Mississippi Agricultural Land Values, Cash Rents, and Lending Conditions: Spring 2015 This report is intended to be an informational guide for producers, landowners, and those working in the agricultural real estate and finance sectors. The report is based on a survey conducted by the Department of Agricultural Economics for the Mississippi State University Extension Service. The survey was conducted within the state of Mississippi from April through May of 2015 (IRB# 15-156). The participants in the survey were lenders, appraisers, agricultural real estate brokers, and farm management service providers. The responses were broken down into the four regions shown in Figure 1. The Northwest represents the Delta region of Mississippi. The report contains the most current information available on land values for dryland and irrigated cropland, pastureland, and timberland. The report also contains information on cash rental rates and current interest rates on various loan lengths and types. Sixty-five surveys were sent out to lenders, appraisers, real estate brokers, farm managers, and representatives of other agricultural operations in Mississippi. Forty-two surveys were completed and returned. Row crop, pasture, and timberland sales values are for tracts where the highest and best use has not changed from agriculture. In other words, the values reported do not include agricultural land that has been sold with the intent of being developed for a different purpose. Table 1 shows the percentage of total responses by occupation and by region.
Land Values Respondents reported the highest cropland sales values occurring within the Mississippi Delta region, where irrigated cropland was as high as $4,800 per acre (average of $4,339 per acre) (Table 2). Non-irrigated Delta cropland was reported as selling as high as $4,300 per acre (average of $3,163 per acre). Despite being the highest in the state, these values are markedly lower than in other states such as Illinois, which reported a sales value of $7,700 per acre1 for quality cropland just last year, or Iowa, which reported a cropland value in 2014 of $7,393 per acre2. Farmland val-
Northwest Region Delta Research & Extension Center STONEVILLE
Northeast Region North MS Research & Extension Center VERONA
Southwest Region Central MS Research & Extension Center RAYMOND
Southeast Region Coastal Research & Extension Center BILOXI
Figure 1. Mississippi State University Extension Service regional map with respective regional main office locations.
ues not in the Delta averaged 22 percent and 29.5 percent lower for non-irrigated and irrigated cropland, respectively, than Delta cropland. Timberland sales values were reported for both mature hardwood and mature pine timberland that is ready to be harvested. According to the surveys, mature hardwood timberland was selling for an average of $245 per acre higher than mature pine, with a maximum value of $4,000 per acre and an average of $2,545 per acre (Table 2). The reported sales values for timberlands are up slightly from their actual sales values in 2013. According to sales data
1
University of Illinois at Urbana-Champaign “farmdocdaily.” Schnitkey, Gary, Bruce Sherrick, and Todd Kuethe. Aug 2014. Online at: http://farmdocdaily.illinois.edu/2014/08/farmland-price-outlook-2014-beyond.html
2
2014 Iowa Farmland Value Survey, Iowa State University. Online at: https://www.extension.iastate.edu/agdm/wholefarm/html/c2-70.html
Table 1. Percentage of respondents by regional location and occupation. By Occupation
Percent
Loans and lending
55
Agricultural real estate
10
Appraisal
16
Farm management services
6
Other
13
By Location
Percent
Southwest
13
Southeast
19
Northwest
55
Northeast
13
Percentages are based upon completed and returned surveys.
Table 2. Fair market sales agricultural land sales values in dollars per acre. Average
Minimum
Surveyed respondents were asked to indicate the direction they believed, based on current conditions, land values were expected to move in the next 12 months. Their choices included “increase from the current value,” “decrease from the current value,” or “no change.” The majority of respondents expected all agricultural land classes across Mississippi to either decrease or not change from their current value levels. The land class most respondents were optimistic about was pastureland, with 29 percent of respondents believing that its value will increase over the next 12 months. Respondents felt most pessimistic about Delta cropland values—54 percent believe Delta dry cropland will decrease over the next 12 months, and 42 percent believe Delta irrigated cropland will decrease. However, a majority of respondents in all categories except Delta dry cropland expect land values to remain flat over the course of the next year (Table 3). Table 3. Expectations for land value movement over the next 12 months.
Maximum
Increase (%)
Decrease (%)
No Change (%)
Delta dry cropland
$ 3,163
$
1,800
$
4,300
Delta irrigated cropland
$ 4,339
$
3,500
$
4,800
Delta dry cropland
8
54
38
8
42
50
15
35
50
Non-Delta dry cropland
$ 2,457
$
1,500
$
3,200
Delta irrigated cropland
Non-Delta irrigated cropland
$ 3,061
$
2,500
$
4,000
Non-Delta dry cropland Non-Delta irrigated cropland
11
31
58
Pastureland
$ 2,455
$
1,500
$
3,500
Pastureland
29
8
63
Mature hardwood
$ 2,545
$
1,200
$
4,000
Mature pine
$ 2,300
$
1,000
$
3,500
from 2012 and 2013, average per-acre hardwood land has remained steady, whereas mature hardwood land was selling for $2,200 to $2,500 per acre during those years. Similarly, mature pine has remained steady over the last 3 years, with mature pine selling for $2,100 to $2,300 per acre in 2012 and 2013. Respondents reported an average sales price of cleared pastureland of $2,455 across the state. This price equates to $4,092 per animal unit (AU) for grazing land in Mississippi3. The reported per-acre value in Mississippi is nearly double the national average for 2014 of $1,300 per acre4 for pastureland. However, stocking rates across the nation vary widely such that the dollars per acre sales values do not necessarily explain the true investment in land for grazing livestock. Areas in the Plains states, such as Kansas and Nebraska, have seen pastureland sales approaching $1,000 per acre with a stocking rate of 15 acres per 1.2 AU. That price and stocking rate implies a valuation of $12,500 per AU. Therefore, grazing land in Mississippi on a per-AU basis remains relatively inexpensive compared to other large cattle-producing states.
Agricultural Land Cash Rental Rates Cash rental rates were reported the highest for cropland across Mississippi in the Delta region, with average irrigated cropland rents around $191 per acre. Table 4 shows Delta dryland crop rents averaged $145 per acre, which was lower than irrigated cropland off the Delta. Though the Delta irrigated cash rental rate was highest on average, it is nearly $17 per acre lower than the national average irrigated cash rent, which is $208 per acre5. Corn Table 4. Irrigated, non-irrigated, and pastureland cash rental rates for the Delta and non-Delta regions of Mississippi (dollars per acre). Average
Minimum
Maximum
Delta dry cropland
$124
$75
$150
Delta irrigated cropland
$191
$150
$250
Non-Delta dry cropland
$105
$50
$150
Non-Delta irrigated cropland
$145
$120
$175
$34
$15
$100
Pastureland
3
1 AU = 1 Animal Unit (1000 lb). Mississippi State Extension forage specialists recommend a stocking rate of 1.2 AU per 2 acres, or 1.67 acres per AU, where 1.2 AU = 1 cow/calf pair.
4
USDA National Agricultural Statistics Service. Online at: http://www.nass.usda.gov/Statistics_by_Subject/
5
National and state rental rates for other states from USDA NASS: http://quickstats.nass.usda.gov/results/58B27A06-F574-315B-A8549BF568F17652#7878272B-A9F3-3BC2-960D-5F03B7DF4826
Belt states have reported rents from 2014 nearing $400 per acre or higher. Pastureland rental rates were reported between $15 and $100 per acre, with an average of $34 per acre. Given a stocking rate of 1.2 AU on 2 acres, Mississippi pasture rental rates are $53.33 per AU, or $64 per cow/calf pair. This is an increase from historical averages given by lenders and appraisers across the state, where pastureland rental rates have typically averaged $20–25 per acre. However, national pastureland sales values and rental rates also have been climbing over the last 12 months. Table 5 reveals that most survey respondents believe rental rates will either decrease or hold steady over the next 12 months. In fact, at least half of all respondents expect cropland rental rates to fall for both irrigated and non-irrigated cropland. A large majority believes dry cropland will command lower rental rates in the coming months. However, 75 percent of respondents think that pastureland will at least command the same rental rate that it has previously, with 10 percent believing it will increase over the next year. Table 5. Expectations for agricultural land cash rental rates over the next 12 months. Delta dry cropland
Increase (%)
Decrease (%)
No Change (%)
0
73
27
Delta irrigated cropland
5
50
45
Non-Delta dry cropland
0
67
33
Non-Delta irrigated cropland
0
59
41
10
15
75
Pastureland
Interest Rates, Lending Practices, and Farm Incomes for Mississippi Agriculture Survey respondents were asked to give the current fixed and variable interest rates being offered to prime borrowers for loans of different lengths, and for different purposes. Table 6 shows the average variable interest rate is 4.1 percent and does not change regardless of term. However, fixed interest rates on average progressively get higher because the risk of future higher interest rates grows with the term of the loan. For short-term operating loans and intermediate loans, the average fixed interest rate is near the variable rate at 4.6 percent and 4.7 percent, respectively. For long-term agricultural loans such as land purchases, the average fixed interest rate being offered is a full percentage point higher than the variable rate at 5.1 percent. The loan-to-value ratio on certain agricultural loans was requested because it is an indicator of expected income or price movement potential of the asset being financed. A higher loan-to-value indicates lenders are willing to finance a larger portion of the asset, with the borrower paying the remainder. Over the last decade, for instance, land has trended sharply upward, and lenders were willing to finance large portions of purchases with the belief that, in
Table 6. Current fixed and variable interest rates offered for short-, intermediate-, and long-term loans. Average (%)
Minimum (%)
Maximum (%)
Variable Interest Rates Operating loans
4.1
3.0
5.0
Intermediate loans
4.1
3.5
5.0
Long-term and real estate
4.1
3.3
5.3
Fixed Interest Rates Operating loans
4.6
3.5
5.0
Intermediate loans
4.7
4.0
7.0
Long-term and real estate
5.1
4.0
6.0
the near future, that asset would be worth more than the financed amount. Those surveyed were asked to give the current loan-tovalue ratios observed across the state for land purchases, machinery or equipment purchases, and replacement cattle purchases (Table 7). Cattle were included because of the fall 2014 increase in cattle prices, when many sales outlets reported replacement heifers and steers selling for more than $3 per pound. The survey asked respondents to indicate the movement of interest rates (Table 8) and farm incomes over the next 12 months. A majority (80 percent) of respondents believe interest rates will increase for prime borrowers in each loan term category. No respondents expect a decrease in interest rates for agricultural loans over the next 12 months. Similarly, more than 80 percent of those surveyed believe farm incomes will be down over the course of the Table 7. Loan to value ratios for land, machinery, and cattle purchases. Average
Minimum
Maximum
Land or real estate
78.0
60.0
85.0
Machinery or equipment
75.6
50.0
100.0
Cattle purchases
66.8
50.0
75.0
*The loan-to-value is the percentage of the purchase financed by the lender.
Table 8. Expectations for interest rate movements on prime borrowers over the next 12 months. Increase (%)
Decrease (%)
No Change (%)
Operating loans
80
0
20
Intermediate loans
83
0
17
Long-term and real estate
88
0
12
0
81
19
Farm incomes
next year; no respondents expect farmers to see higher profits than 2014.
Conclusions and Outlook Agricultural land values are driven primarily by two factors. The first, and most obvious, is commodity prices. The substantial drop in the price of corn, soybeans, and cotton over the last year has substantially stunted the growth of both land values and rental rates. The outlook for commodity prices for row crops into 2015 is discouraging as well, with many experts projecting prices to stay low or go even lower as the U.S. moves into the fall harvest season with ending stocks high. With respect to agricultural land sales values, in some states a decline has already begun. Iowa agricultural land prices fell nearly 9 percent in 2014. In other states, including Mississippi, there has not yet been much of a decline; however, the steep upward trajectory in sales values has stopped. Average cash rental rates for cropland have declined slightly as farmers look at current high input costs and low commodity prices. Some of those who renegotiated rates for 2015 appear to have contracted ground at a lower rate than previous years. Others who may be locked into multiyear agreements, however, are still paying rates near record highs of a year ago. In areas where rents exceeded $400 per acre, reports have surfaced of producers walking out on contracts due to commodity prices that do not support such rates6. However, should commodity prices remain lower over the course of the next year or two, average cash rental rates should continue to fall as longer-term rental agreements go up for renegotiation. The other driver of land values in agriculture is the available funding for new purchases. Historically low interest rates have made financing relatively inexpensive for potential borrowers, which has contributed to the
rapid run-up in land values over the last several years. An increase in interest rates, which most respondents of this survey expect, means that the principle amount of any future loan must decline to keep payments manageable for potential borrowers. Also, as farm incomes were high, lenders were willing to lend up to 90 or 95 percent of the value of purchased farm ground under the assumption that the land’s value would continue to increase. This survey shows lenders are less willing to lend such a high loan-tovalue ratio on land, requiring potential buyers to put more equity into new purchases to protect lenders from a drop in value. However, not all agricultural land prices have flattened or declined. Pastureland values and rental rates have increased over the last year. The low prices for feed grains and a relatively small U.S. herd size improved margins for beef producers, especially cow/calf operators who are enjoying record high prices for weaned calves. Thus, the returns to pasture ground have increased dramatically, causing pastureland values and rents to move upward. The upward trajectory of pastureland sales values and rents is expected to remain strong as long as cattle prices hold most of their previous gains. The 2014 Harvest of Forest Products Report7 details a recent modest improvement in demand for pine saw timber and little to no movement in demand for hardwood timber. The current demand for the two respective timber commodities has been reflected in price (pine saw timber has slightly increased, while prices for hardwood timber products has remained unchanged over the last year). However, despite the modest increase in pine saw timber product demand and prices, the outlook for both hardwood and pine timberland is that their values will remain mostly unchanged from the previous year.
6 Winterbottom, Jo, and P.J. Huffstutter. “Rent Walkouts Point to Strains in U.S. Farm Economy.” 23 Feb 2015. Online at: http://www.reuters.com/article/2015/02/23/us-usa-grains-rents-insight-idUSKBN0LR0EX20150223 7
Henderson, J.E. 2015. 2014 Harvest of Forest Products. Forest Resources Market Notes, Cooperative Extension Service, Mississippi State University, Mississippi State, MS.
Copyright 2015 by Mississippi State University. All rights reserved. This publication may be copied and distributed without alteration for nonprofit educational purposes provided that credit is given to the Mississippi State University Extension Service. By Dr. Bryon Parman, Assistant Extension Professor, and Andrew Lewis, Graduate Student, Agricultural Economics. We are an equal opportunity employer, and all qualified applicants will receive consideration for employment without regard to race, color, religion, sex, national origin, disability status, protected veteran status, or any other characteristic protected by law. Publication 2889 Extension Service of Mississippi State University, cooperating with U.S. Department of Agriculture. Published in furtherance of Acts of Congress, May 8 and June 30, 1914. GARY B. JACKSON, Director (POD-05-15)
