An exclusive survey of Corn & Soybean Digest online readers also finds Southern farmers more bullish than Midwest farmers on future grain prices and long-term land appreciation rates.

 Farmland values reflect expectations for future crop profits. “As long as we have low interest rates and strong commodity prices, we will see upward pressure on land markets,” says Mike Morris, chief appraiser for 1st Farm Credit Services, Normal, IL.

To help get a pulse on just how you view land market price trends and your expectations for 2012 cash rent rates, Corn & Soybean Digest conducted an exclusive online survey of readers.

Online readers in the eastern Corn Belt states of Illinois, Indiana and Ohio say “good” non-irrigated cropland is trading at $6,000/acre; $5,600/acre in the western Corn Belt states of Iowa, Nebraska and Minnesota; and $2,500/acre in the southern states of Arkansas, Mississippi and Texas.

The majority of Midwest online readers say farmland prices have been rising rapidly in recent months, while most Southern respondents characterize the market as rising slowly. Readers say current price trends have been in place for three years in the western Corn Belt and South, and nearly four years in the eastern Corn Belt.

Southern farmers are more bullish on the medium-term price prospects for corn, and have the highest expectations for land price gains over the next decade. Online readers in the South expect corn prices to average $6/bu. over the next five years, versus $5.50/bu. in the eastern Corn Belt, and $5/bu. in the western Corn Belt.

Looking further out, readers expect land values to rise 5% annually over the next decade in the South; 4% in the eastern Corn Belt; 3% in the western Corn Belt.

What will eventually stall the land-value run? A majority of online readers across all regions believe that falling grain prices due to a recession or increased production will eventually cause land prices to stabilize or decline. Readers say the second most likely factor to pressure land prices is rising interest rates. 

A majority of readers in the South (55%) and western Corn Belt (51%) agree that buying farmland today involves a great deal of risk, versus 45% in the eastern Corn Belt.

 

 

Cash Rents Should Spike in 2012

The gap between cash rents and cropping profits continues to widen, helping support record farm-operator earnings.

Rent income yields (per-acre cash rent divided by the per-acre land value) across Indiana, Illinois and Iowa are at their lowest level in at least 44 years. Income yields for Iowa cropland have shrunk from nearly 6% in 2000 to 3.4% today.

Part of this is due to legacy leases – multiple-year agreements struck before grain prices escalated. Another reason for the growing gap is absentee landowners out of touch with the changing economics of crop production.

A recent paper, published in Choices magazine by University of Illinois economists Gary Schnitkey and Bruce Sherrick, noted that Illinois crop profits doubled to $306/acre between 2006-2010 and 2000-2005, while cash rents rose just 24%.

As a result, landowners’ average share of cropping profits fell to 55% during 2006-2010, compared to 82% during 2000-2005. If corn prices continue to average around $4/bu., the economists look for Illinois cash rents to rise sharply if rents revert to landowners’ historical 82% share of crop profits. Illinois cash rents would average $250/acre under this scenario – 37% above this year’s $183/acre average rate.

The willingness of farmers to push up rents is already playing out in competitive-bid lease offerings. On Sept. 6, a dozen farmers submitted bids to lease 322 acres of cropland for three years in Bond County, IL. The winning $281/acre bid was 55% over the prior $182 rate.

Our survey of Corn & Soybean Digest online readers shows that farmers look for rent rates on excellent-quality land (corn yield above 200 bu./acre) to increase 19% in 2012 to $300/acre; good quality (175-199 bu./acre) land to rise 11% to $250/acre; average quality (150-174 bu./acre) tracts to hold steady at $150/acre; and fair quality (below 150 bu./acre) land rents to climb 13% to $90/acre.