What does the future hold for land rents, land values in Wisconsin?
There is a wide range of thoughts on land values and land rents in Wisconsin. On August 2, 2018, the USDA National Agricultural Statistics Service released information on land with the release of Land Values 2018 Land Summary. The USDA reports that the average cropland cash lease in Wisconsin in 2018 is at $140 (which is an increase of $1.00 from 2017), and the average cropland values are $5,150 per acre for 2018, which is a decline of $50 and acre from 2017. What does this mean? How does this reflect the talk at the local coop or local pie shop?
This snapshot of the land market in Wisconsin from the USDA is facts based upon this point in time. You may have heard that rental rates have plunged and that land just isn’t worth anything, or you could have heard that land rents have jumped with some outsider coming into the local neighborhood driving up land rents to crazy highs, or that your neighbor paid way too much for the farm next door that you always thought you could buy for half of what they paid for it.
The land market is often hard to define in many areas in Wisconsin. Land is often sold before many know that it was even on the market, and in some areas land will linger on the market for years before it is sold.
The old rule in real estate is location, location, and location. Some areas of Wisconsin have many competitive farm managers that are constantly working to grow their business. Growth to many is considered progress and the idea of moving forward with the farm operation. The local community based demand helps to support strong land prices and also strong rental rates.
Another factor in Wisconsin is the continued demand by Amish and Mennonite communities that continue to grow in numbers. With additional members joining the communities there is increased competition for the land.
Other factors in land value demand are government influences. Forested land is taxed at higher rates than agricultural land. There has been a strong movement of nonfarm buyers in looking for farmland to own and hunt on as the carrying costs are less for owning cropland and the potential of land rental income eases the ability to pay for the land.
The USDA continues to offer farm program payments and crop insurance as tools for farm operators to have some security in making decisions on renting farmland and owning farmland.
CAFO operations are under the watchful eye of environmentalists, government agencies, and others concerning nutrient management plans and how they are carried out. Many CAFO operations are looking for additional land to allow for the implementation of nutrient management plans. Farmland is either purchased or leased to meet the nutrient management plans.
Investors are also looking to purchase farmland as a part of their investment portfolio. Safe and good returns are what investment groups and individuals are looking for. Land since 1970 has outperformed the Standards and Poor’s. It appears to many, that investors are wisely investing when purchasing farmland as an investment.
Interest rates on loan funds continue to be at low levels, and some lenders continue to offer long-term fixed rate loans. This offers an opportunity to lock in payments in some cases for over 20 years. This offers stability to the land buyer.
Farmland rental rates up
Wisconsin farmland rental rates have increased about 60% in the past 9 years in Wisconsin. There have been several reasons for this increase in land rental rates.
The most important reason is the increased demand in land for crop production purposes. Improved grain prices drove the start of the jump in land rental rates. The second factor in increased demand is improved management that offers greater rewards to growth.
Technology has made application of nutrients and seed more accurate by calculating site based needs and abilities of each acre. Larger air seeders have replaced drills in the planting of seeds. Combines can harvest larger paths as they pass in the field and also record yields that will assist the grower in planning their farm operation’s next moves with nutrients, hybrids, and even with economic decisions into the future.
Using computers, iPads and smart phones has made for great profits on many farm operations. Many growers now have a better handle on production and production costs. If additional acres will add to profit, the producer will add land to their farm operation.
What does the future hold for land rents and land values in Wisconsin? Profits, technology, the amount of land offered for sale, and the amount of land that operators are willing to add to their farm operation will impact land rents and values.
Continued demands by government on livestock operations will also impact land values and land rents. If demands are too burdensome on livestock, there may be a decline in demand for land from livestock operations. If the government withdraws support for crop insurance programs or price support protection programs, there could be a decline in demand for farmland and rental rates for farmland.
If Wisconsin county and local governments impose moratoriums on the construction of CAFOs, there could be less demand for farmland to own or rent. Interest rates could return to offering higher rates of returns on bank deposits, and this could increase the amount of farmland on the market and create less demand if farm profits cannot support higher loan interest rates.
The issue of free and fair trade may make for greater uncertainty, and that may also impact farmland values and land rental rates.
In summary, it is important to know your costs of production, the goals for your business, what values you place on family, community, and the environment. Continue to build a support team to assist in your business including production, marketing, and business management.
Bob Panzer has owned and rented farmland in Wisconsin and Minnesota over the past 32 years. He has served as an agricultural lender, agricultural educator, and farm management adviser and holds an MS - Agriculture from UW-Madison.