Category Archives: rental rates

New Farmland Price Updates From the Midwest — First Quarter 2012

1. From the Federal Reserve Bank of Kansas City 1st Quarter 2012 — Report By Jason Henderson and Maria Akers. 
(This district includes the northern portions of Illinois and Indiana, southern Wisconsin, the Lower Peninsula of Michigan, and the state of Iowa.)

I have chosen some key points from this report in the bullets below:

  • First-quarter ranchland values climbed higher, jumping 16 percent above year-ago levels.
  • For the first time since the survey began in the late 1970s, the annual value of District cropland rose more than 20 percent for two consecutive years.
  • Farm credit conditions strengthened further in the first quarter while demand for farm loans dwindled.
  • Several bankers noted some farmers were converting pasture ground to row crops when feasible.
  • The index of farm loan demand fell to its lowest level since the late 1980s.


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  • Compared with the fourth quarter of 2011, the value of nonirrigated and irrigated cropland in the District surged by 8 and 9 percent, respectively.
  • Ranchland values also shot up in the first quarter, appreciating more than 7 percent since the end of last year.
  • The value of nonirrigated cropland rose 25 percent above year ago levels in the first quarter of 2012, on top of the more than 20 percent gain posted in 2011.
  • The value of irrigated acreage vaulted more than 30 percent higher than a year ago, a new survey high.
  • Nebraska once again led farmland value gains for the District, followed by Kansas.

Selected quotes from the districts area bankers:

“There is more liquidity in the farm sector than I have seen in my 30 years as a banker.” —Northeast Kansa

“Land prices are higher and more buyers are out-of-town investors.” —Southeast Wyoming

“Pasture that could potentially be tilled is bringing significantly higher prices.” —Southeast Nebraska

 

2. From the Federal Reserve Bank of Chicago 1st Quarter 2012 Report on Farmland and Credit Conditions in the 7th District — by David B. Oppedahl 
(This district includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and portions of western Missouri and northern New Mexico.)
To follow are the highlights that I’ve selected from the Chicago report:

  • There was a 19 percent year-over-year increase in the first quarter of 2012.
  • The quarterly increase in agricultural land values for the District was 5 percent—in line with the gains of the past year and a half.
  • The demand to purchase farmland in the six months ending with March 2012 was higher relative to that in the six months ending with March 2011. Additionally, the number of farms sold, acreage sold, and the amount of farmland for sale over the winter and early spring rose more sharply than a year ago.
  • Farmland values in Iowa continued to lead the pack, with a year-over-year increase of 27 percent.
  • On a year-over-year basis, “good” agricultural land values in Illinois, Indiana, Michigan, and Wisconsin were up 20 percent, 15 percent, 7 percent, and 13 percent, respectively.
  • Relative to investors, farmers again purchased a higher share of the acres sold in the past three to six months, although investors were actively searching for properties across the District.
  • Farmland cash rental rates in 2012 climbed 17 percent from 2011 for the District—the second-largest increase in the history of the survey. Cash rental rates for agricultural land went up 15 percent in Illinois, 15 percent in Indiana, 20 percent in Iowa, 12 percent in Michigan, and 19 percent in Wisconsin
  • Based on the USDA index of prices paid by farmers, input costs for agriculture rose 6.6 percent through the first quarter of 2012 compared with the first quarter of 2011. Thus, with possibly lower revenues for several outputs and higher costs for inputs, agriculture faces a more challenging road to profits in 2012 than in 2011.
  • The index of non-real-estate agricultural loan repayment rates climbed to its highest level in the survey’s history (154) for the first quarter of 2012, as 56 percent of the respondents noted higher rates of repayment and only 2 percent noted lower rates.
  • Growth was forecasted in farm machinery, grain storage construction, and real estate loan volumes in the second quarter of 2012 compared with the second quarter of 2011.

In both districts, there was some momentum to sell to take advantage of current high farmland prices, with more properties on the market.

The last part that I thought was interesting was this data on machinery sales. Combines and the largest of tractor sales is down, presumably because some purchases were already made in the early part of this boom.

 

Hot 5: China’s Dairy. Rodale Study. MIT Battery. Farmland Rents Return. Biodynamic Farming.

1. China is Industrializing its Dairy

China is in the process of importing 100,000 dairy cows from Australia, New Zealand and Uruguay for the company Modern Dairy which is funded by the U.S. company KKR and other private investors. Existing dairy cows in China are half as productive as those in the U.S. and the nation would like to become self-sufficient in dairy. Consumption of dairy products is rising along with the level of affluence in China’s population.


2. Rodale Study Shows that Organic Farming of Corn Outperforms Conventional In Drought Years

The above photo is from the Rodale Institute Study “Organic Farming Outperforms Conventional, Chemical Farming Based on a 30-year side-by-side trial”. It shows corn in the legume-based (left) and conventional (right) plots six weeks after planting during the 1995 drought. The conventional corn is showing signs of water stress.

Organic corn yields were 31% higher than conventional in years of drought. These drought yields are remarkable when compared to genetically engineered “drought tolerant” varieties which saw increases of only 6.7% to 13.3% over conventional (non-drought resistant) varietiies.

Also, corn and soybean crops in the organic systems tolerated much higher levels of weed competition than their conventional counterparts, while producing equivalent yields. This is especially significant given the rise of herbicide-resistant weeds in conventional systems, and speaks to the increased health and productivity of the organic soil (supporting both weeds and crop yields).

To review the Rodale study, go here.

3. MIT Professor Donald Sadoway Has Developed a Cheap Scaleable Battery Which Can Power 200 Homes With One Battery the Size of a Shipping Container

Battery technology advancement is critical for green energy and for farming in remote areas. As climate change increases the cost of storm damage to the electrical grid, less populated areas may become vulnerable to repair neglect, just as cell phone services are dropping calls in some rural areas. Micro-grids are proving cost-competitive for farmers in developing nations of India and Africa as I reported in news here earlier this week.

The problem at the heart of many sustainable-energy systems: How to store power so it can be delivered to the grid all the time, day and night, even when the wind’s not blowing and the sun’s not shining? At MIT, Donald Sadoway has been working on a grid-size battery system that stores energy using a three-layer liquid-metal core, based on floating layers of high-temperature molten metal and salt. He says that what has been a handicap for other types of batteries — namely, that they tend to get very hot during either charging or discharging — is actually a big plus for his liquid version.

With help from fans like Bill Gates, Sadoway and two of his students have spun off the Liquid Metals Battery Corporation (LMBC) to bring the battery to market. The company has received $13 million in government and industry funding.

“With a giant battery, we’d be able to address the problem of intermittency that prevents wind and solar from contributing to the grid in the same way that coal and gas and nuclear do today.”

Sadoway was named by TIME magazine as one of the 100 most influential people of 2012.

4. Farmland Return on Investment Continues to Decline According to Rent-To-Value Ratio

The farmland rent-to-value (RTV) ratio, calculated as the cash rent per acre divided by the land value per acre, is a proxy for how quickly an asset will pay for itself. The roughly 45-year trend reveals a decreasing RTV ratio. If agricultural rents were the sole source of returns from farmland, the farmland would have paid for itself in about 14 years in 1951, but would take more than 33 years in 2007. The regions with the highest RTV ratios are the Northern Plains, Delta, Mountain, and Pacific regions. Since 1999, almost every USDA region has seen a decrease in RTV ratios. Farmland prices are more volatile than rents.

5. What is Biodynamic Farming?

The Biodynamic Farming concept originated with Austrian Rudolph Steiner in the 1920s, who also started the Waldorf School education system. In farmers markets everywhere, I am seeing organic farms tout that they practice “biodynamic farming”.

Biodynamic farming:

  • Is holistic organic farming.
  • Works with the rhythms of nature.
  • Is self-sustaining.
  • Works under a theory of cosmic influences.
  • An astronomical sowing and planting calendar is used.
  • Unifies the relationship between soil, plants, and animals.
  • It requires many years to build healthy soil using manures and composts.
  • Healthy soil in return produces healthier, higher quality food.
  • It requires a diversified farm.
  • It works economically when producers and consumers fulfill each others needs. A good example is Community Supported Agriculture, or the CSA, which was developed by biodynamic farmers.


As an aside, note that one unsustainable aspect of modern organic farming that you may have noticed in the above video and on organic farms that you’ve visited, is the large amount of plastic used (and later discarded) for weed-blocking and greenhouses. Plastic is very important to organic farmers to save weeding labor, help with the soil’s moisture retention, and extend the season for produce.

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Comprehensive Update on Farmland/Cropland Cash Rent Rates for the Midwest

With farmland prices escalating rapidly in recent years, rental rates have also been rising, and since half of Iowa and other Midwestern area farmlands are rented, a common and difficult question to answer is how much to charge for cropland rent. Of late, we have seen a rapid rise in the price of farmland, input costs, and farm commodity prices. Both risk and reward are increasing, creating volatility and difficulty when it comes to rental rate decision making time.

Cropland rental rate increases in 2011 ranged widely from 5-30% across the upper Midwest. In this posting is the latest available cropland survey rental data (that I was able to find) for Nebraska, Iowa, Indiana, Illinois, North and South Dakota, Kansas, and Minnesota, based on state-wide surveys provided by their respective universities and the USDA.

According to Economist Ernie Goss, 39% of Midwestern regional bankers reported that cash rent prices for agricultural land rose more than 10% in March 2012 year-over-year. He reports that there has been a substantial increase in rents this year, with an overall average of 7.8%.

For the past four decades, farmland values continue to rise faster than rental rates. In the year 2007, it would take 33 years to pay for farmland through cash rents. Back in 1951 it would have taken only 14 years.

In 2011 the average farmland price reached $6,708 per acre in Iowa, up 32.5% from 2010. Rents rose more than 11% in 2011. Because farmland prices advanced significantly, the return on the farmland dropped from 3.8% to 3.4% in 2011, in Iowa.

Rental agreements vary by type, but are most commonly cash lease, crop share lease, or flexible cash rent agreements. As an example, currently in Illinois, traditional fixed cash-rent leases make up 32% of farming agreements and 68% of agreements include sharing in crop production and price risk.

To follow, are the farmland rental rate averages from the individual states.

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NEBRASKA CROPLAND RENTAL RATE AVERAGES 2005-2011

To view the entire Nebraska report: http://agecon.unl.edu/c/document_library/get_file?uuid=3740277f-4fee-45aa-af27-1428d261d462&groupId=2369805&.pdf

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IOWA’S AVERAGE CASH RENTS FOR CORN AND SOYBEAN ACRES 2007-2011

To view the entire Iowa report: http://www.extension.iastate.edu/agdm/wholefarm/html/c2-10.html

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SOUTH DAKOTA AVERAGE FARMLAND RENTAL RATES FOR 2011

To view the entire South Dakota report: http://pubstorage.sdstate.edu/AgBio_Publications/articles/C278.pdf

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INDIANA AVERAGE FARM RENTS FOR 2011

To view the entire Purdue (Indiana) report: http://www.agecon.purdue.edu/extension/pubs/paer/pdf/PAER8_2011.pdf

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KANSAS CASH RENTS FOR FARMLAND 2002-2011

To view the entire Kansas report: http://www.nass.usda.gov/Statistics_by_State/Kansas/Publications/Economics_and_Misc/Landval/landvlcashrnt11.pdf

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FARMLAND AVERAGE CASH RENT BY ILLINOIS COUNTY IN 2011 AND EXPECTED 2012 RENTS

To view the entire Illinois report: http://web.extension.illinois.edu/jsw/downloads/40766.pdf

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MINNESOTA AVERAGE FARMLAND RENTAL RATE INCREASES FROM 2006-2010

To view the entire Minnesota report: http://www.cffm.umn.edu/Publications/pubs/FarmMgtTopics/RentalRates.pdf

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NORTH DAKOTA

In North Dakota, farmland rents are up 5-10% over a year ago where farmers will plant a record 3.4 million acres of corn this year, up from 2.2 million acres last year. Richland County had the state’s highest rental rate for nonirrigated this year at $175 per acre. Rental rates in south-central North Dakota increased an average of 12%. Nonirrigated farmland in Emmons County was up 15% from $48.10 per acre last year to $55.40 per acre this year. Nonirrigated farmland in North Dakota’s southwestern region of Bowman County saw rental rates up 4.7% from $31.80 per acre last year to $33.30 this year.

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RENT TO VALUE RATIOS ARE IN DECLINE, ACCORDING TO USDA SURVEY DATA

There has been a 45 year trend in decreasing rent-to-value ratios of U.S. farmland. Survey data collected by USDA’s National Agricultural Statistics Service shows that since 1999, almost every USDA region has seen a decrease in RTV ratios. The Lake States and Southern Plains experienced the largest relative decrease in RTV ratios, a decline of 48.3% and 51.2%, respectively. The Delta and Mountain regions had the lowest relative (percentage) decrease in RTV ratios between 1999 and 2008, 4.2% and 8.8%, respectively. Some experience larger levels of volatility in the RTV ratios, especially in the Delta, Mountain and Pacific regions (more farmers in these three regions use irrigation, and some of the volatility could be due to our averaging of irrigated and non-irrigated rents and land values). The areas with the highest RTV ratios are the Northern Plains, Delta, Mountain and Pacific regions. The Corn Belt and Lake States are closer to the national average. The Southeast, the Southern Plains, Appalachia and the Northeast all have lower RTV ratios.

For more information from the USDA on declining rent to value ratios of U.S. farmland: http://www.ers.usda.gov/Publications/EIB92/EIB92.pdf

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Midwest Farmland Prices Update for the Year 2011

The Federal Reserve Banks of Kansas City and Chicago have come out with their 4th Quarter 2011 farmland price/credit conditions reports. It is always interesting to see how much farmland prices have changed in these reports, especially at year’s end.

2011 was another stellar year in farmland price gains. It is reported that more absentee and elderly landowners were motivated to sell given these very high prices. Credit conditions remain healthy with cash from high commodity prices being used to make many of the necessary farm expense purchases.

The Chicago District reported the highest average gain in farmland prices since 1976, up a 19% inflation adjusted average for the year.

They attributed the rise to commodity gains, as follows, according to the USDA:

Corn, soybean, and wheat prices averaged 57 percent, 26 percent, and 45 percent, respectively, higher in 2011 than in 2010. Milk, hog, and beef cattle prices rose 23 percent, 21 percent, and 21 percent, respectively, although producers faced costlier feed as well.

Net farm income in 2011 was up 24% over the previous year. For 2012, the USDA is predicting an 8.2% reduction in net farm income.

The three states across these two regions showing the largest gains for the year were Nebraska (up 37.8%), Iowa (up 28%), and Indiana (up 27%). Farmers continue to be the main buyers of farmland in these two districts.

Many cash rents were negotiated up steeply for 2012, up 18% in the Kansas City district, compared to 6% higher the year before.

Sources:
Federal Reserve Banks of KC [pdf]
Federal Reserve Bank of Chicago [pdf]

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Iowa Cropland and Pasture Rental Rates

Iowa Farmland Rental Rates 1994-2011 (USDA)


Cropland rental rates averaged $196 per acre in 2011, up $20 per acre from 2010. This was the highest value ever recorded. Cash rent for pastures averaged $46 per acre in 2011, an increase of $6 from the previous year. Rent as a percentage of land value was slightly lower than in 2010.

To see multi-year chart go to Iowa State Edwards report.

Farm Cash Rental Rates in Middle America

Note that this post features information about farm cash rents from the Seventh Federal Reserve District’s First Quarter 2011 report on Farmland values and credit conditions and from the Iowa State Extension Service. The Seventh district includes all of Iowa, most of Illinois, Indiana, Michigan and Wisconsin. —KM

  • District cash rental rates for agricultural land in 2011 jumped 16 percent higher compared with 2010.
  • Cash rental rates were up 14 percent in Illinois, 15 percent in Indiana, 16 percent in Iowa, 18 percent in Michigan, and 20 percent in Wisconsin.
  • With 16 percent of farmland on crop shares, 1 percent on a bushel basis, and 3 percent on other arrangements, there appeared to be an inclination by owners to get more involved in farm operations and garner higher returns in 2011.


Next, find Iowa cash rents showing changes from 2007 through 2011.


Source: Iowa State Extensions Service

~Farmland Price-to-earnings Ratio~



With the increase in farmland values matching that for cash rental rates, there was no change in the price-to-earnings (P/E) ratio for agricultural land. The unchanged P/E ratio indicated relatively balanced demand to purchase versus rent farmland. In an asset valuation model, the present price of an asset should reflect both current profitability and expectations for future earnings. The P/E ratio for farmland can be constructed as the ratio of indexes based on average farmland values per acre and cash rental rates per acre (the latter representing the earnings potential of farmland).

source