Land Value Has Less To Do With Agriculture

At a recent seminar in St. Louis, Professors Terry Kastens and Kevin Dhuyvetter of Kansas State University presented some great insight on the influences of land values.

We can all agree in many areas of the country and North America that non-agricultural factors are playing a more significant role in land value. This includes land for development, recreation, hunting and other lifestyle attributes in demand by the general public.

Overall nationwide, 37% of land value is made up of non-agricultural factors. In North Dakota it’s less than 25%; however, in my home state of Virginia, it is as high as 91% for cropland with a similar trend when examining pastureland.

The upper Midwest and Northwest, as well as the Mississippi Delta and Southern Plains generally have more than 50% of value linked to the capitalized return from agriculture. The eastern parts of the U.S., New Mexico and Arizona generally have 75% of land value linked to the non-agricultural factors. From 2002 to 2006, cropland average annual appreciated growth rate was slightly over 10% while pastureland was slightly higher at 14.7%.

Only time will tell how much longer this will continue. Strong energy prices, low interest rates and less attractive non-farm alternatives such as the stock market and housing market have created a paper gain on the balance sheet not seen since the 1970s.

Management Tip of the Week:
Complete your year-end or year-beginning balance sheet. Has your net worth increased in the past year because of earnings or appreciation of assets?

Editor’s note: Dave Kohl, The Corn And Soybean Digest Trends Editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.