The Free Press, Mankato, MN

Local News

June 6, 2010

Cash cropland: Ag land holds value

Prices dipped in 2009, then recovered

By Tim Krohn Free Press Staff Writer

— What recession?

While home values fell and commercial development land plummeted 60 percent in value, southern Minnesota’s rich farmland has held its value.

“Farmland, particularly quality farmland, held pretty strong,” said Kent Thiesse, a farm analyst and vice president at MinnStar Bank in Lake Crystal.

“There was a little dip in overall values in 2009, especially when the livestock sector was going through some tough economic times, but the last half of 2009 and into 2010 it’s recovered and stabilized.”

A look at sales prices in one very rural area — Waverly Township in Martin County — shows the trend. A decade ago, land there was selling for an average of $1,663 per acre. In 2009 it was selling for an average of nearly $4,500 per acre.

The highest quality land continues to sell for even more.

“Most good, bare farmland will bring $4,000 to $5,000 in this area and it can bring $5,500,” Thiesse said.

Still, land values are not increasing as fast as they did in previous years.

David Bau, a University of Minnesota ag business educator, found that land values in south-central and southwestern Minnesota grew by less than 1 percent in 2009, compared to a 30 percent increase in 2008.

A report from Farmers National Company found that in some cases the highest quality land is bringing near $6,000 an acre in southern Minnesota and $7,000 in Iowa.

Sales Manager Sam Kain said, “Lower quality parcels are drawing minimal interest and coming in at much lower prices.

“Buyers are willing to pay top dollar for quality land. However, there seems to be little interest in lower quality and recreational properties,” he said.

Thiesse said more outside investors are turning to farmland because of nervousness with the economy and the uncertainty of the stock market. “That outside interest seems to have increased from a year ago.”

But a bulk of the land is being bought by existing farm operators, who have attractive interest rates and the capital to invest in land.

Thiesse said he doesn’t fear a repeat of the 1980s when land prices shot up, followed by high interest rates, a slow farm economy and a rash of foreclosures.

“A lot of land back then was purchased at 15 or 25 percent down and the interest rates took off and values came down.

“(Now) We’re seeing 30 to 50 percent (cash) put down in most cases and people are locking in on long-term low interest rates,” Thiesse said.

He said larger down payments makes the land cash flow when it wouldn’t otherwise.

“If you just took a parcel and were going to buy it at 25 percent down it’s probably not going to cash flow. But if you have 40 or 50 percent down, you’re investing into that instead of putting it into some other investment and it’s much more feasible to cash flow.”

One thing that has slowed is farmland owners near cities selling land at premium prices for development. Bare development land in Blue Earth County fell by 60 percent in assessed value this year because of the recession and slow construction.

“There was a lot of mark up because they were selling off land for commercial use,” Thiesse said. “But since commercial values dropped off, there’s not much of that now.”

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