Aug 30, 2008 9:28 am US/Central
Land Prices In Minnesota Soar With Crop Prices
MANKATO, Minn. (AP) ―
After buying 42 acres of Nicollet County farmland, Bryce Peterson is looking toward the sky even more this year.
His effort to expand the family farm comes amid record-high land prices, making an inherently risky business even more so.
"All the land (prices) are going crazy in this area and surrounding areas. It's nuts," he said.
Of course, he can also look forward to near-historic prices for his corn, but even that doesn't guarantee a good year.
"It's a gamble either way. The price of corn goes up, but the price of everything else is up, too," he said.
Across the country and closer to home, land prices continue to rise along with the price of corn and soybeans, a new agriculture department study shows. Many farmers are riding the trend, but with a note of caution this can't last forever.
Record-high corn and soybean prices are the first place any discussion about land prices should start.
"If you've got a good 80 (acres) out there, it's going to bring at least 5,000 dollars an acre and that's an all-time high," said Wayne Schoper, Extension educator for Brown and Nicollet counties.
Sure, crop prices have taken a big hit during the past four to six weeks, he said, but even the 35 percent drop has left prices "in the top couple of percent," historically.
Ethanol and other biofuels are typically credited (or blamed, depending on your perspective) for high prices.
The same trend that is favoring strong corn prices the cost of oil, boosting corn-based ethanol is also raising costs for oil-based farm chemicals such as fertilizer.
"That could be another sign that the values could stall," Schoper said of still-high oil prices.
The U.S. Department of Agriculture report shows Minnesota cropland prices rose by 12.8 percent, to $2,820 an acre in 2008. But for the prime land of south-central Minnesota, prices are rising even faster.
In Nicollet County, there have been eight farm sales since October that can be used to set land values. That means the sales weren't between family members and didn't have other circumstances that spoiled them for comparison purposes.
For taxes payable in 2009, farmland assessments were increased by 15 percent countywide, assessor Doreen Pehrson said. That has put the county's assessment at an average of 93 percent of actual sales, a safe place to be.
Banks that help finance those land deals also have taken a keen interest in the trend.
Royce Elker directs Agstar Financial Services' appraisal services. He said the lender follows certain properties over years even decades to track land prices. It calls these properties "benchmark" farms.
From July of last year to last month, the average increase for the 12 benchmark farms in the area has risen 15.5 percent, he said. Depending on the land, prices have risen by as much as 25 percent and as little as 10 percent, he said.
And those double-digit increases have continued for two or three years, Elker said.
Those increases haven't gone unnoticed by the Carlstrom couple, Lee and Jane, who have spent the last few years looking for a place to build a hobby farm near Mankato.
Jane Carlstrom said they were surprised at the cost of cropland alone and were about to "bite the bullet" on such land when they found a better deal.
They hedged against the high cost, in part, by buying a parcel with a house that can be resold.
Longtime players in this industry remember another time of skyrocketing commodity and land prices, and they don't reminisce fondly.
"At some point, there's going to be, in my humble opinion, a turnaround and we have to be ready for that," said Schoper, the Extension educator. "When the bubble bursts, it's extremely painful financially for everybody."
Elker, the Agstar appraiser, was a loan officer in the 1980s and agrees, if somewhat less dramatically: "It wasn't pleasant."
But both men agree that the industry is better poised for a recovery today.
Lenders, Schoper said, are requiring farmers to come up with more money themselves. Overreaching purchases should be less prevalent if farmers are required to put more capital up front.
The crash taught lenders a lesson in risk management, Elker said.
And the agricultural sector has avoided the credit crisis of the mortgage industry because land prices are based on real value the land can actually make money given high crop prices, Elker said.
Elker predicts that land values will keep rising, though not at 15 percent annually.
Schoper recommends farmers have a good marketing plan and budget in place. And fore-contracting, or selling crops ahead of time, continues to be a good idea, he said.
Land owners who rent out their land deserve to share in the land price rise, but he recommends resisting the urge to jack up rents.
"Anytime you have commodity prices like this, it drives people crazy," Schoper said.
As for Peterson, that Nicollet County man who's farming some new land this year, he's liking the sky so far.
"If the weather holds up, it'll be a great year."
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