Farm income plummeted with the collapse of the commodity boom in 2013 yet cropland, usually a farmer’s biggest asset and the foundation of a farm’s financial health, is as valuable as ever, the USDA says. Producers are making enough money to pay their mortgages, aided in part by low interest rates on the loans, while the perennial hunger among farmers, ranchers and investors to buy land is bolstering prices on the national level, although the Midwest and northern Plains feel the pain of lower commodity prices.
In its annual Land Values report, USDA estimated U.S. cropland is worth an average $4,090 an acre, unchanged from 2016 and 10 percent higher than in 2013, when farm income peaked. Net cash farm income, a measure of liquidity or the ability to pay bills, is forecast this year to be 70 percent of 2013’s level, but up a tick from last year.
Farm group leaders and their allies in Congress say the huge drop in net farm income, down by half since 2013, shows the need for a strong agricultural safety net in the 2018 farm bill. USDA says net farm income is a measure of wealth – the value of a farm operation, including crops held in storage for sale later.
Cropland values have taken a hit in the Corn Belt and northern Plains since 2013, while many other regions held steady or notched up increases, according to the report, based on a survey of land values on 11,000 tracts of land, each roughly one square mile, during the first two weeks of June. The report, by USDA’s National Agricultural Statistics Service, did not go into reasons for land values.
“I won’t pretend I’m not a little surprised” by the strength of land values, said economist Pat Westhoff of the think tank FAPRI. “Continued low interest rates, record 2016 crop yields, and higher livestock prices might all be playing a positive role, but I would not have guessed it would be enough to offset other negative factors.” Some state-level surveys are not as sanguine as USDA’s national report, he said.
Economist Dan Bigelow of USDA’s Economic Research Service said low interest rates “have definitely bolstered land values to some extent.” Land is a long-term asset so its value is based on current and expected future income, he said, so land values are not as volatile year to year as farm income. “We have seen a lot of variation across the country,” said Bigelow.
Farm lenders repeatedly reported a decline in land values in the Midwest and the northern and southern Plains, the heart of U.S. grain, soybean, cattle and hog production, since 2012. The Federal Reserve said in its quarterly Ag Finance Databook that the sluggish farm economy and weaker credit conditions were pulling down land values from a year ago.
Wheat and cattle states, such as the drought-hit northern Plains, “reported relatively large declines in farmland values from the previous year. Bankers in Texas, southern Wisconsin and Iowa reported slight increases, likely due to strong demand for farmland and limited sales. Farmland values in most other states remained flat from the previous year,” said the Databook.
By region, land values are highest in the Corn Belt states, $6,670 an acre, but California, No. 1 in fruit and vegetable production has the highest average value for a state, $11,290 an acre, up 3.5 percent from 2016, said the USDA report. By contrast, Corn Belt values were down by 0.6 percent from last year.
The average value for pasture land, $1,350 an acre, was a fraction of cropland value because of lower expected returns.
When the value of agricultural buildings are added to land values, the resulting farm real estate value of $3,080 an acre, was up by $70 an acre, or 2.3 percent from last year.