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Farmland values continue to hold steady despite an economic environment that has produced declining commodity prices over the past six years.

The average price of agricultural land sold in Wisconsin in 2017 was $4,025 per acre. Although this is a 3.5 percent increase from 2015, this value is relatively unchanged from 2016, according to a report from the University of Wisconsin’s Center for Dairy Profitability. 

“There were 11 percent more acres sold in 2017 and 13 percent more reported transactions,” noted Arlin Brannstrom, faculty associate emeritus at the University of Wisconsin’s Center for Dairy Profitability. “Declining farm incomes helped to dampen demand. With low commodity prices expected and increased borrowing costs again in 2018, producer competition for land will likely soften again.”

The report is generated from land sales data collected by the Wisconsin Department of Revenue.  The 10-page report provides land price averages and ranges which are broken down into geographic districts used by the National Agricultural Statistics Service.

While the state average increased slightly in 2017, farmland prices per acre varied widely across the state. Twenty percent of the recorded sales were less than $2,000 per acre while 17 percent of sales had prices above $6,000 per acre.

"High priced sales make good headlines; however, there were very few sales above $10,000 per acre," Brannstrom reported.

Compared to its Midwest neighboring states, Brannstrom says Wisconsin's agricultural land typically garners lower prices.

"A larger portion of our land is not suitable for continuous row crop farming and more of our land is used for forage production, woodlots and pasture," he said. "The shorter growing season in northern Wisconsin also limits the potential agriculture value of the land."

Location, location

Brannstrom says location is an important determinant of value. Last year, there were fewer acres transferred in northeast and the north central districts with the average price per acre valued at $2,795.

Bare agricultural land sales in the northwest district brought the lowest price per acre in 2017, averaging just $2,307, while the average price per acre in the southeast district averaged $6,525 per acre.

Brannstrom says the lower number of land sales in southeast Wisconsin are influenced by urban pressures of Milwaukee, Racine and Kenosha. The small acreage in Northeast Wisconsin reflects the large amount of forest and recreation land in that district.

The three districts with the largest percent of farm land sales have been the west central, southwest and south central. The total acres sold in 2017 increased over 2016.

East central Wisconsin sales saw the largest weighted average price increase in 2015 as strong dairy industry and land auctions helped to drive up sales prices. During this period, the highest average price per acre was recorded in Brown County at $16,919. Land price averages in east central Wisconsin declined again in 2017.

This part of the state is also home to the largest concentration of large dairy farms, and is also the fastest growing milk production region in the state.

Land values vs. rental rates

In 2016, NASS reported that the average rental rate was $131/acre, which is about 3.2 percent of the statewide average sale price.

Rental rates are highly variable, depending on soil quality, field size, drainage improvements, social contracts and demand for nutrient management.

Brannstrom said a high demand for additional rented land in 2012-2014 caused prices to increase as tenants bid up the rental rates. Those rates have remained relatively stable in recent years due to tighter profit margins on farms.

Based on revenue and cost projections—using the state average rental rate of $131 per acre—an operator would lose $147 per acre with a yield of 150 bu. and an average corn price of $3.25 per bu.

 

"In this case renters are not able to cover their full cost of production and must hope for above average yields or improved commodity prices or both," Brannstrom said, adding that the outlook for higher commodity prices isn't encouraging.

When the average cash rents are combined with land value appreciation, the returns to owning land have performed better than many other investment alternatives, he said.

"Rents tend to be "sticky" when commodity prices soften—as we've seen in 2016 and 2017," Brannstrom said.

With lower commodity prices on the horizon again for 2018, competition for rental land may soften in 2019. 

Mixed blessing

Rising land values are a mixed blessing for farmers. While high land values may provide a retirement cushion for "last generation" farm businesses, young farmers trying to get started in the business may find the financial challenge daunting without help from family or other sources.

New farmers may also face stiff competition for land as larger, expanding dairy herds need more and more land to grow forage and to meet nutrient management requirements.

Record low interest rates and changing population demographics have also increased demands for open space.

"Expanding dairy businesses may have to rely on long-term leases or manure trading arrangements to assure compliance with environmental regulations and land use constraints," Brannstrom said. "Although dairy farming is well suited to the climate, topography and infrastructure of Wisconsin, the continued survival of a viable dairy industry depends on access to affordable land resources."

Dairy farming in southeastern, east central and south central Wisconsin in particular, is under great pressure from competing land uses. In addition, these areas of the state also have some of the highest land values.

"If the trend continues," Brannstrom said, "dairy production will continue to shift away from these parts of Wisconsin."

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