Kansas farmland values, which climbed and at times soared since 2006, started to level off in 2014 and have dipped so far this year, pulled down by lower grain prices, according to Kansas State University agricultural economist Mykel Taylor.
The value of cropland in Kansas as of Aug. 15 slipped to an average $2,210 per acre, down 2.2 percent from the comparable period last year, according to U.S. Department of Agriculture data. Speaking at K-State's recent Risk and Profit Conference, Taylor said she expects cropland values to soften in the coming months.
Average pasture values, however, were 6.9 percent higher at $1,390 per acre, according to the USDA, which reflected the continued historically high prices for cattle, she said.
Taylor's presentation is available at here.
In her work studying land values, she uses data from the Kansas Property Valuation Division of the Kansas Department of Revenue, which includes information from actual sales transactions rather than surveys conducted by the USDA's National Agricultural Statistics Service. While general trends typically run the same for both, average prices reflected by the sales transactions tend to be higher than those reported on surveys.
In 2014, according to property transaction data, overall Kansas agricultural land was worth $3,320 per acre. The value of non-irrigated cropland was $2,990 per acre, compared to the average value reflected by USDA's NASS surveys at $2,150 per acre. Irrigated land was valued at $5,169 compared to the survey value at $3,280. The average value of pasture land according to sales data was $1,802 an acre, above the $1,300 average reflected on surveys.
Taylor's "land model" derived from the transaction data takes into account such factors as location, including average rainfall and taxes, productivity by soil type, whether the land is enrolled in the Conservation Reserve Program and if the land is irrigated, dryland or pasture.
"Land enrolled in CRP generally has not been considered as valuable as some other farmland, because producers have perceived the CRP designation as limiting regarding what they could do with the land," she said, adding that she expects that to change in the coming years. Because CRP prevents farming on that particular land, when farming is more profitable, CRP rents are relatively low. When growing crops is not so profitable, CRP rents are relatively higher.
The price trend for irrigated and non-irrigated land for 2010-2014 went up, but slowed in 2013-2014.
Land values are not created equal
The value of irrigated land in south-central Kansas averaged $6,008 per acre in 2014, compared to $3,389 in southwest Kansas, $5,413 in west-central Kansas and $5,970 in the northwest part of the state. Because south-central Kansas typically receives more precipitation, irrigated cropland in that part of the state is worth more than in western counties that usually have less precipitation, Taylor said.
Non-irrigated land values in 2014 ranged from an average high of $5,133 per acre in northeast Kansas to an average low of $1,472 per acre in the semi-arid southwest Kansas.
Non-irrigated land in southeast Kansas was valued below land in northeast Kansas, Taylor said, because soils in the southeastern part of the state do not have the moisture holding capacity that northeast Kansas soils do.
The value of the state's pasture land varied widely in 2014. Values ranged from an average high of $3,095 per acre in northeast Kansas, which receives more pasture-sustaining precipitation, to an average low in southwest Kansas of $887 per acre, which generally receives less precipitation.
When it comes to farmland rental rates, Taylor said survey results tend to lag the market, because they don't take into account when the rates were negotiated and may include non-market activities. In addition, they only reflect average rents that are paid, which may mask land quality differences.
She projected rental rates, based on such factors as county-level yields from a 20-year trend and expected cash prices, based on futures and the local basis.
Rental rates for irrigated land in northwest Kansas were projected to average $112.75 per acre in 2015, down 37.1 percent from $179.13 in 2014. Rates for southwest Kansas in 2015 were projected at $71.62 per acre, down 48.7 percent from $139.54 in 2014. Rates for south-central Kansas irrigated land were projected to average $77.45 an acre, down 47.5 percent from $147.64.
Rates for non-irrigated land are also expected to fall, for example averaging a projected $119.50 per acre in 2015 in northeast Kansas, down 28.7 percent from $167.65 in 2014.
Not all farmers have dropped their cash rents, Taylor said, but if commodity prices remain low, more will.
"The concern many farmers have is whether the low grain prices we are seeing today will continue and cause a drop in land values similar to what was experienced in the 1980s," she said. "As long as interest rates stay low and farmers are conservative with their production costs, I think we can avoid another farmland crash, but it all depends on how long we have these low grain prices."
More information about Kansas agricultural land values is available on the K-State Research and Extension agricultural economics website http://www.agmanager.info/farmmgt/land/.