Minnesota Farmland Values Update
Minnesota Farmland Values Update
As an agricultural appraiser working in southern Minnesota, the most common question I am asked from clients, co-workers, and members of the community is fairly obvious, “What’s farmland worth around here?” My response always begins with what an instructor of mine coined an “It Depends” statement (designed to keep an appraiser out of trouble). For example, I may say, “It depends on where the farm is, what type of soils, ease of operation, drainage etc.” Once we have gotten through all of that and start talking value, there’s often a follow up question, “How can land values still be that high?”
Members of the agriculture industry are well aware of the struggles the industry has been experiencing over the past few years in terms of depressed commodity prices, stubbornly high input costs, and tightening margins. Despite these headwinds, agricultural land values have remained fairly stable throughout much of Minnesota over the past 18 months with some pockets of the state even experiencing modest gains in farmland values.
One example of an upward trending market is Goodhue County in southeastern Minnesota. Home to a diverse set of both agricultural livestock and row crop producers, this market has been fairly active over the past few years with roughly 30 “arm’s length” sales of agricultural cropland per year.
In 2018/2019, the weighted average sale price on a tillable acre basis was approximately $7,450 per acre, up nearly 10% from the 2017. Recently a local dairy operation purchased a tract of adjacent land from another dairy operation transitioning out of the business for nearly $9,100 per tillable acre. Location and the increased acreage and efficiency for manure disposal were large influences on the final sale price.
Agricultural row crop and hog production are the primary drivers of value in Freeborn County. Sales activity in this market has also been fairly lively. The weighted average sale price on a tillable acre basis in 2018/2019 was approximately $6,400 per tillable acre, down nearly 3% from 2017 and consistent with a steady modest decline in value since 2013. Nevertheless, a local producer purchased a farm they had been renting for many years for $8,000 per tillable acre in order to keep it from going up for sale.
These two markets highlight the fact that despite local trends in a market area, there are always buyers willing to pay strong prices for a piece of farmland that fits their specific situation. Although margins have been limited for row crop producers over the past few years, there are still operators in the market with strong balance sheets willing and able to make a purchase if the right piece of farmland comes up for sale. The consistently low turnover rate of agricultural land, which typically tracks at roughly once in a lifetime for most farms, motivates some producers to pay higher than market prices in order to acquire that “love property.”
One final observation is a shift away from the traditional live auction sale method, prevalent in the agricultural land market for decades, towards the sealed bid format or a formal listing with a land agent. Over the past few years, “no sales” at live auctions have become more common, leaving many estates and land owners unwilling to risk their largest asset to the mercy of the auction block.
In summary, land values throughout Minnesota have stayed consistently stronger than the experts predicted. The unique nature of agricultural production and the heavy impact specific locations can have on agricultural land values, make it difficult to provide an all-encompassing blanket statement for the entire region.
The appraisal staff here at Compeer recently started the process of updating the benchmark farms throughout our service area. This will shed some additional light on changing land values in Minnesota. These updates will be summarized in future posts later this summer.
So what is land worth in Minnesota today? … It depends.
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